It was the esteemed management consultant Peter Drucker who opined that “culture eats strategy for breakfast” but for Geoff Carter (pictured), and his team at Sabre Insurance Group, success stems from recognising how the two naturally run together. It was this success that recently made headlines as the UK motor insurer reported strong premium growth and a healthy capital position for Q3 2023, bucking the wider downward trajectory of the market.
Speaking with Insurance Business, the Sabre CEO noted that the results were hard-won and the result of a relentless focus on pursuing a ‘profitability over volume’ strategy. The group looks for circa 20% margins in its pricing, he said, which is quite substantially higher than the rest of the industry with its average premium standing at about £1,000.
“Our strategy dictates that there’s a right price for everything,” he said. “We price consistently, we price in our target margins, and we focus on getting the basics right. You won’t see us doing lots of brand-building stuff, you won’t see ‘values’ on our wall when you come into our office. We know what our values are, we don’t need to publish them.
“Our strategy is really very simple, we believe there’s a right price for almost everyone and so we quote for 98% of the market… We believe that if you’re going to do one thing, you’ve got to do it really well. And that’s our strategy at Sabre – motor insurance done really well.”
While Sabre’s strategy might sound straightforward, Carter said, applying it became increasingly complex amid “the most complicated period I’ve seen in almost 30 years in the market”. Being cyclical, the market is used to periods of downturn which it experienced at the start of 2018. Just as this was on the upswing, COVID hit.
The impact of COVID was enormous – people couldn’t get driving tests which meant no new drivers entering the market. Few were buying cars and, indeed, much fewer were driving, which meant claims plummeted. The biggest issue facing the market, he said, was because the crisis was so unique, there was no historical data that could be used to predict how it might play out.
“And then we hit the inflation speedbump straight after COVID, where it spiked from 8% to almost 12%. So, you had this series of once-in-a-lifetime events all colliding with each other,” he said. “But we focused on trusting our original strategy and the data it was based on, and we decided we were not going to change our strategy.”
There are a lot of conversations about the affordability of insurance taking place at the moment, Carter said, but what is flying under the radar is that insurance premiums have not increased since their 2018 levels. Premiums came down significantly after 2018, and they’ve only just caught up now. And that’s combined with the fact that premiums have increased less than wages over the last five years.
“So, essentially, motor insurance is no less affordable than it was five years ago,” he said. “I believe the industry really shot itself in the foot by not increasing prices steadily. If you look at the price increases recorded by other insurers in the last six months, they’ve probably gone up 25%. And we at Sabre have been shouting about this for the last two years - ‘the market is underpriced’.
“Very few people did anything and suddenly it has had to catch up all at once. And of course, the headlines are ‘my premium’s up 25% this year’. But go back five years, and it was no different, it’s just you’ve seen it all in one go. It’s really interesting to see how a whole industry can shoot itself in the foot.”
Having led industry conversations around the impact of inflation and the responsibility of the market to price sensibly, he said, it is quite frustrating to see the PR disaster, which is spiking motor insurance premiums, unfold. At industry events, the impact of claims inflation was widely discussed, so the question remains why so few providers put those discussions into pricing action. The answer is at least partly because the scarcity of quotes during COVID made many of the larger providers panic, recognising the need for volume in order to keep paying wages.
“The problem in the mass market is that it’s incredibly price elastic,” he said. “So you might have a 10-to-one price elasticity. So, if you put up your price 1%, you will lose 10% of your volume. And if you need to put your price up five points, you’re going to lose half your business overnight. That’s really difficult to do as an insurer.
“The problem of course is that someone needs to go first. Somebody makes the first leap and everybody says, ‘Thank God for that’ and comes tumbling down the hill after them. But somebody has to crack and be the first mover who puts their prices up.”
Being the first mover in this scenario was not a comfortable place for Sabre to be, but Carter noted that at no point did he ever consider giving in to the temptation to pull back on his strategy. In fact, he said, the temptation simply wasn’t there because he and his team were convinced they were right. They recognised the extraordinary impact of COVID and they trusted in their data.
“The way we described it was the longer it went on, the harder the handbrake turn would be,” he said. “And that’s exactly what has happened. If the market had corrected itself even a year ago, it may have been 10% less impact and there would still have been a fuss, but nowhere near the same level of noise. The longer it went on, the longer the distance to reverse and that’s what we’re seeing now.”
It’s a long-term play that has paid off handsomely for the group which saw its GWP come in at £162.2 million for the nine month period ended September 30, up 19.5% from 2022. In the same period, GWP for its core motor vehicle portfolio rose 34% year-to-date and saw increased policy count without sacrificing its profitability as a target and volume as an output approach.
Looking to 2024, Carter said, top of the agenda is not losing pricing discipline. As the market moves into more favourable conditions, it can be easy to relax and to lose focus, and in doing so, lose the ground that has been gained. The focus for Sabre is on maintaining price discipline while also looking for sustainable and meaningful growth.
“As a PLC it’s hard for us to talk about how the year might turn out, but looking at the bank analysts’ consensus numbers, they think we could be on for one of our biggest-ever premium years, which is quite the turnaround from where we were 12 months ago,” he said. “So, I want to make sure we carry on growing sustainability. For us, it’s about maintaining our strategy and grinding out great results for the year ahead. We’re not looking to relax or to rest on our laurels, we’re going to stay paranoid.”
