With all the mergers and acquisitions going on in the insurance industry, customers are sure to be confused and may suffer. Tony Baker knows first hand what its like for his motor insurance policy to be shuffled around, and he looks at the consequences

Before our very eyes there is a merry-go-round taking place that must have far reaching implications for the industry and its customers. I have changed my motor insurer three times in the last three years but ended up where I started. As it has turned out, I have really been with just the one company, as a result of mergers and acquisitions.

I was with Commercial Union but was encouraged to change by my broker to General Accident; a good policy, well respected leading motor insurer and good on claims, I was told. The premium was also a little less.

Along came CGU so I was back in part with Commercial Union. My business was now with the largest motor insurer. Come renewal my broker, however, recommended changing to Norwich Union; a good policy, well respected third largest motor insurer and good on claims, I was told. The premium was also a little less.

Now along comes CGNU so I will be really back where I started, at least until my policy renewal. Who will my broker recommend this year? Perhaps he should be a share tipster. One thing is sure is that the choice of insurers is theoretically reducing with all the mergers and acquisitions.

Three years ago, the top five motor insurers had a market share of a little under 40%. Now they have over 60%. Will it be 80% plus in a year or two or will the big companies find competitors increasing market share at their expense?

If you insure 10% of motorists and you merge with another company that also has 10%, there is no guarantee you will end up with a 20% market share. The rationale behind many mergers and acquisitions is that size matters and big savings can be achieved by stripping out duplication between the companies.

For motor insurance, any merger savings are likely to be small, but potential disruption could be enormous as the businesses are integrated. Will customer service suffer? How will the new company introduce a single rating structure? There are likely to be existing customers who will lose out while others might benefit. What do you do about brand names?

Will intermediaries be happy to place ever increasing amounts of business with a single company? Many intermediaries could find that they are placing three quarters of their motor account with just four companies. It will be interesting to see if the big four compete between one another or look at the market as a whole.

There is a real likelihood that many motorists will be interested more and more in shopping around as a result of the big premium increases being introduced by most insurers. In the last year rate increases have averaged above 10% but the range of increases has been vast, from 5% to 40%.

There is a real opportunity for the efficient, well-focused medium sized motor insurers to gain market share. You realistically need at least half a million motor policies as a base, but this represents under a 3% market share.

The only problem may be that if a company does achieve an expanded market share, one of the big four will find them a temptingproposition.

Perhaps more of a threat is the possibility a big new entrant joining the market, with an innovative new way of transacting business. If you start with a blank sheet of paper there may be ways of meeting the legal requirements for motor insurance and customer needs in a very different way from how policies are drawn up, rated and distributed today.

In the 1990s, 83% on average of motor insurance premiums were paid out in claims. Expenses averaged 25%. Investment income ensured the viability of the business.

However, looking at these figures another way is interesting. For every £1 paid out in claims, it costs 30p more to cover expenses. Some people may think that this is a high figure to manage the motor insurance risk. Someone out there may think of alternatives.