Property owners to bear the brunt of the cost of flooding; PERSONAL FINANCE.(News)

Property owners face the prospect of higher premiums this year after the impact of widespread floods saw the home insurance industry slump to a loss of more than pounds 300 million in 2007, a report said this week.

Market analyst Datamonitor said the June and July deluge last year, which caused severe damage to thousands of UK homes, is estimated to have cost the sector about pounds 3 billion.

Additional household claims, taking total payouts to more than pounds 4 billion, dragged the market from a pounds 167 million profit in 2006 to a loss of more than pounds 300 million last year, it said.

But Datamonitor added that the industry was likely to return to profit in 2008 as insurers raise premiums and claim costs return to normal.

Datamonitor financial services analyst Mahreen Hussein said: "While the market suffered heavy losses in 2007, premium income actually held up pretty well.

"As long as premium rates don't decline in 2008, we are forecasting a return to profit for the household insurance market."

The report said premiums had only increased "marginally" in 2007 and added that growing competition in the home insurance market may help to limit bill hikes.

Increasing numbers of homeowners are now buying cover over the internet, using price comparison sites such as moneysupermarket.com and confused.com, boosting rivalry between insurers, it said.

Ms Hussein added: "As more consumers use the internet to purchase their insurance, and are more likely to switch exclusively on the basis of price, insurers may fall into a trap of continuing to compete aggressively in 2008 in a bid to retain market share.

"These sustained competitive elements in the market may therefore hinder the ability of insurers to bring in very strong rate increases, leading to only smaller levels of profit for 2008."

Datamonitor's figures back up those of industry body the Association of British Insurers (ABI), which said its member companies dealt with about 165,000 claims as a result of the summer deluge.

The floods in Yorkshire, Gloucestershire and Worcestershire will cost the industry more than pounds 3 billion, and have combined with other events to make 2007 the worst ever year for weather-related claims.

The ABI said the average cost of a property flood claim was pounds 20,000. The organisation has called for a 25-year flood strategy, including planning controls to ensure new housing developments are not built in high-risk areas. It also said a single national body responsible for flood management should be set up.

One of the UK's largest insurance companies Aviva, which owns Norwich Union, this month increased its estimate for claims stemming from the summer floods by pounds 75 million.

Its bill for adverse weather costs in 2007 is now pounds 475 million after its general insurance business came to the aid of 45,000 households and 6,000 businesses in June and July.

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Last summer's flooding in Gloucestershire, Worcestershire and Yorkshire is estimated to have cost the insurance industry pounds 3 billion