It seems hardly a day goes past without us mentioning Quindell Portfolio (see here and work back). However this time Quindell appears to have hit the jackpot with the announcement of the long-awaited insurance BPS win with the RAC, which has the potential to see £500m of auto claims costs pass through Quindell’s business annually.
The announcement follows yesterday’s acquisition of legal costs consultancy and costs drafting firm Compass Costs Consultants Limited (Compass Costs) for £14m in shares. So the frenetic pace of activity continues.
The RAC deal is the biggie that Quindell and the market have been waiting for, and sent its shares up c13%. Running for 5 years and covering Quindell’s software, consultancy and business process services, the deal is Quindell’s largest signed to date, dwarfing its previous biggest announced last May (see Quindell wins £120m insurance BPS deal (update)). Being the RAC with 7m members, the scale of the opportunity for Quindell is very significant. Apparently it addresses c10% of the UK auto insurance market, and currently 5% of UK auto claims cost per annum. As part of the agreement the RAC also gets 250m shares in Quindell, or c7% of the company, which it can sell any time over the next 24 months.
Reassuringly for Quindell, the RAC agreed a ‘payment profile’ for the deal so that it remains 'cash positive on the majority of transactions', and it therefore won’t drain a significant amount of Quindell recently raised £80m in equity (see here). Even better news if Quindell can replicate this approach on future wins.
Quindell’s actual net revenue from the deal will certainly not be £500m p.a. As it's for motor claims a significant amount will be passed through to third parties for repairs and vehicle hire, as is the case with rival WNS (see here). The amount Quindell actually makes will depend on a variety of factors, such as the value of work delivered by Quindell operations, versus passed through to third parties. It will also depend on the volumes of claims presented for administration, which can go up as well as down. Nonetheless, the addressable opportunity is significant enough for Quindell to be confident on meeting expectations for FY13.
For more insight into what's driving the UK insurance market see our recent BusinessProcessViews report General insurance BPS: opportunities in a rapidly changing market.