ONE STATISTIC sums it up: as recently as 2005, if Cooperative Insurance wanted to change the rate it charged on a home or motor policy, it took three months to implement.

The Coop’s insurance operation was stuck in a time warp. It was using a system from the 1970s to deal with claims and selling its policies through a network of thousands of agents that looked more appropriate for the 1950s.

But next week, the Cooperative’s general-insurance division will unveil 2007 profits of more than £50m – up by about 50% on the year before – and that’s after settling flood claims of £36m. It is a changed business.

“The old system just wasn’t sustainable in the modern market,” said David Neave, director of general insurance for Cooperative Financial Services.

“The rating system was desperately out of date. The claims operation was run out of 18 offices; it wasn’t based on anything much more sophisticated than manila envelopes.”

Neave came from Royal & Sun Alliance and took over the Coop’s general-insurance operation in 2005. It historically relied for virtually all of its turnover on tied financial advisers; at one point, there were more than 5,000 of them.

The agents sold policies, collected the premiums and handled claims. Motor insurance accounted for about two-thirds of all premium income.

Neave said: “It was self-evidently an expensive system and it was terribly variable. For individual customers, the quality of service was largely down to the happenstance of who they were dealing with.”

Certainly, the statistics suggest that the insurance business was inefficient. In the decade to 2006, the bill for payouts and overheads was 20% higher than premium income. It was not sustainable.

Now, the Coop sells its policies directly by phone and over the internet, through businesses such as the AA and Kwik-Fit, through the so-called “aggregators” or price-comparison websites, as well as through the Coop’s remaining direct salesforce which now numbers just under 1,000.

An operation that once relied entirely on its network of agents received 70% of its business through other channels last year. This year the figure is likely to be even higher.

Motor insurance remains an important part of the business, with 650,000 policies currently in force. There are 900,000 home-insurance policies.

Also under the umbrella of Cooperative Financial Services (CFS) is a £25.5 billion life and pensions operation, run as a ring-fenced mutual fund. And there is the Cooperative Bank. In total, CFS has about 6m customers and 9,000 staff.

The notion of the dividend - a payment to customers to reflect how much they spent with various parts of the Coop - largely died out in the 1980s. But the scheme was relaunched 18 months ago, and across the Coop as a whole - which stretches from running food outlets, pharmacies, travel agents and funeral parlours as well as the insurance and banking operations - there are now 2.5m members who will be entitled to a share of the profits.

The Coop still appeals to the “conscience consumer”. Two years ago, it launched a motor-insurance policy that offset 20% of a car’s carbon-dioxide emissions: customers could choose the eco-insurance or a standard policy. In future, all motor policies will have the offset element built in.

Once a rebranding of the Coop Bank is completed next month, there is likely to be more cross-selling between the constituent parts of CFS.

The general-insurance operation now makes an underwriting profit - and it no longer takes three months to change the price charged for an insurance policy.

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