Claims firm has an ethical edge
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MOTOR insurance costs have been rising fast over the past few years and most of us know why. Personal injury claims have been soaring. Whiplash claims alone cost more than £2billion last year, adding almost £100 to the cost of a typical policy.
Overall, personal injury claims cost the insurance industry about £3.5billion a year and claims have been rising so fast that the Government is introducing legislation designed to cut the number of fraudulent claims and bring down premiums.
The changes could make life difficult for some of Britain’s less scrupulous ambulance-chasers. But one company, Quindell Portfolio, should benefit and its shares should rise too.
Lawyers currently pay insurers about £1,000 a time for referring injury claims to them. The average claim yields about £10,000, so there is plenty of cash for the lawyers and the driver or passenger making the claim. But the practice has been widely criticised for encouraging the compensation culture and the Government intends to ban it from next April.
Quindell owns a string of companies that help insurers to process claims more effectively, driving down their costs and delivering a better service to consumers.
The company is run by Rob Terry, who has spent most of his career in the industry. He founded claims handling company The Innovation Group, floated it in 2000 and drove sales from nothing to more than £100million in three years. He left in 2003, but intends to deliver even more rapid growth at Quindell.
The group joined the Alternative Investment Market last April and Terry has been buying companies since. He has now built a portfolio of complementary businesses. Ai Claims manages areas such as car repair and car hire after a crash. Mobile Doctors arranges independent medicals when people claim they have been injured in a crash. And Silverbeck Rymer is a personal injury law firm.
About half Britain’s insurers manage claims in-house, but there is a growing trend to outsource this type of business.
Quindell is an attractive partner for large insurers because it offers a comprehensive range of claims management services. And having Ai Claims, Mobile Doctors and Silverbeck under one umbrella will drive down costs, so Quindell will not need to rely on referral fees and can charge insurers less than most rivals.
The strategy is working and Quindell has already picked up business from Royal & SunAlliance and Ageas (formerly Fortis). Terry is in talks with other leading insurers and a number of contracts are expected to be signed before the end of the year.
Last week, Quindell bought IT-Freedom. It works in telematics, where small electronic devices are installed in cars to show insurers exactly how people are driving. Insurers are starting to use the technology and many more are expected to adopt it. Criticised in some quarters for being invasive, it can help to push down premiums if drivers can prove they are safe at the wheel.
Quindell delivered sales of £13.7million last year and profits of £6.7 million. This year, brokers expect sales of £80million and profits of £28million, while in 2013, sales are forecast at nearly £300million with profits rising to more than £40 million. Upwards revision of these figures is likely.
Midas verdict: Quindell shares are 5.63p and the company is valued at £145million. But Terry is determined to move the group to the main market over the next year and take it into the FTSE 100 within a few years. Brokers believe he can do it. Encouragingly, he has invested more than £12million of his own money in the business. Buy.