Insurance services could soon be traded on huge cyber markets on the internet, producing massive savings of up to £13bn, predicts a report from KPMG Consulting.

The report's writers, Chris Gentle and Philip Middleton, suggest a virtual insurance exchange comprising 12 insurers could have a potential market value in the region of £800m. This is nearly one-sixth of the £6bn market value of Royal & SunAlliance.

They claim such a vast business-to-business platform would have enormous economies of scale, facilitate bulk-buying and produce competitive pricing.

Internet exchanges would enable insurers to procure claims-related goods and services from a large range of suppliers including, replacement goods, credit hire and claims management.

They might also avoid Insurance Premium Tax by being based in an offshore tax haven. The exchange would be funded by a transaction fee of around 1%.

The authors said: "The insurance industry can potentially process £112bn of claims through digital trading exchanges, generating savings of £13bn."

But they said insurers would have to collaborate in the long term, and set up genuinely independent exchanges, if they are to avoid tough anti-monopoly investigations similar to those conducted into by software giant Microsoft.

Internet marketplaces already exist for a number of industries, for example the Catastrophe Risk Exchange, a reinsurance market.