The insurer’s modus operandi used to be simple: customer takes out a policy, insurer responds when a claim arises. Not anymore

These days, the pace of change within the general insurance industry is pretty relentless. Yet as a market we probably all feel that we continue to focus on what’s important: improving quality, boosting responsiveness and becoming more efficient. All of this is good news for customers and can only help with our continuing mission to treat customers fairly.

But has all the change we’ve experienced in recent years really been good news for customers?

Not long ago, motor insurance was a pretty simple concept. Customers paid a premium to buy protection in the event of an accident. Insurers responded when a claim arose, they held their customer’s hand through the process and facilitated a swift return to normality. To make money, insurers relied on the quality of their risk selection and pricing. In general terms, they competed to identify those drivers who presented acceptable risks and a better claims profile, and they bridged any gap with a slice of investment income.

How things have changed. With the advent of credit hire and claims farming, and the tremendous revenue streams that they can produce, I am beginning to wonder whether some players really care at all about the type of customers they attract, as on the face of it the insurance element in the equation is now becoming marginal.

Such are the spoils of credit hire and injury farming that I suspect that some insurers’ pricing models (and those of some brokers too, for that matter) may well now be skewed to specifically attract those customers who offer them the best opportunities to make money from anything except the core insurance product. In other words, risk selection is directed more towards those customers most likely to actually generate claims – albeit those in the non-fault category.

Why? Because there is big money to be made. First, on referrals to a friendly repairer, then there’s the kick-back for credit hire, and this is then followed by a nice chunky referral fee to a claims farmer to enable them to pursue the third-party insurer for minor injuries that may (or occasionally may not) have been sustained in the accident.

The fact is that the insurance risk-bearing element in this sort of scenario is in danger of becoming a secondary issue. Instead, the primary objective might easily be about making as much money from the claim as possible. It may no longer be “what are the likely costs of the claim?” but instead “what can we make from it?”

Of course, this sort of additional ‘no-risk income’ has been used successfully in the direct market to subsidise underwriting results for many years. But is there now a real possibility that the potential to generate such a significant revenue stream might actually become more attractive than insuring vehicles in the first place? After all, such income is probably far easier to predict than the burgeoning risks associated with traditional motor underwriting and pricing.

And where does the poor old customer sit in all this? For all their protestations, I’m beginning to think that some players really aren’t that concerned. All their referral services are likely to be outsourced anyway, so that the insurer and/or broker might not actually engage with the customer at all.

Fair enough, you might say. The customer seems happy. But would this be the case if they realised that they are actually paying for all this? Because these extra costs have to be picked up somewhere, and you don’t have to look too far to find out who is bearing the brunt. The private motor market is currently haemorrhaging cash: one estimate says that insurers burned over £1bn of capital in reserve releases last year, and sadly things are getting worse.

This means that motor premiums are rising faster than they have done at any other time in recent memory, and insurers may yet need at least another 20% rise just to break even. Is this good news for customers?

The bottom line is that there has to be a real concern that the industry may no longer be about offering customers the best and most appropriate protection at all, but simply about highlighting those who might offer the best potential for making money from referrals and non-risk income.

Those involved might argue that this is still insurance – but not as I know it.

Laurent Matras is managing director of Groupama Insurances