Two of Britain’s leading insurers are to put up the cost of household insurance by an average of 10 per cent after two months of devastating floods.

Norwich Union, the country’s biggest insurer with one in five homes on its books, will bring in the price rises from Monday in response to the worst floods to have hit England in 60 years.

Lloyds TSB also said yesterday that it expected to increase home insurance premiums for all customers by about 10 per cent.

The higher premiums will affect existing Norwich Union and Lloyds TSB customers who seek to renew their buildings and contents insurance policies, as well as new customers. The price increases will apply to all customers, and not just those hit by the recent flooding.

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BACKGROUND

• Water company ‘cleans up’ as customers clear up

• How to clean up after your home has flooded

• A disaster with mankind's footprints stamped on it

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• The Times forecast

• Government flood warnings

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A spokeswoman for Aviva, Norwich Union’s parent company, said: “We had the premiums under review before these events. There will be an increase in premiums as the flooding is one of the elements causing claim inflation. The increase will on average be 10 per cent.”

Direct Line and Churchill, two other leading household insurers owned by Royal Bank of Scotland, told The Times that they would also be putting up the cost of their household insurance policies, but declined to say by how much.

Phil Loney, managing director of Lloyds TSB insurance, said: “Premiums will go up across the industry. Strong competition in home insurance has kept premiums down but the impact of the flooding has been extreme. Ten per cent sounds about right.”

The price increases come barely a fortnight after The Timesgave warning that hundreds of thousands of homeowners would be hit by higher insurance premiums after a second wave of flash floods last month meant that insurers were facing record claims. The flooding bill for the insurance industry may top £3 billion according to one credit rating agency, far ahead of the £1.3 billion that insurers had to pay out after the flooding in 2001.

Igal Mayer, chief executive of Norwich Union Insurance, said: “Having visited Gloucestershire myself, I’ve witnessed at first hand the traumatic and emotional impact the floods have had on our customers.

“We’re bringing in additional contractors and specialist equipment to ensure repairs are carried out as quickly as possible and we’re in discussions with local authorities to find the best solution to providing temporary accommodation for those who have had to leave their homes.”

Norwich Union has put aside £340 million to cover the cost of last month’s floods in central England and the devastation in Hull and Sheffield in June which forced a week-long closure of Meadowhall, the region’s largest shopping centre.

The company said that the July floods had prompted about 8,700 claims, mostly from Gloucestershire. Of these, about 7,500 claims were on domestic policies to compensate for flood damage to homes and cars and the rest related to commercial properties such as offices and shops.

A Norwich Union spokeswoman said that the insurer was exploring the possibility of providing caravans for claimants in Gloucestershire who are unable to live in their homes. The company has already provided 200 caravans and 200 temporary kitchens for those affected by the Hull and Sheffield floods.

Tewkesbury, Gloucestershire, was submerged for more than a week last month, prompting the RAF to send in helicopters to rescue people, while the Army took essential supplies to residents of Upton-upon-Severn, in Worcestershire. Floodwaters at one stage peaked just below the wall 5m (16ft) high that protects the centre of Gloucester from flooding.

Fierce lobbying from the insurance industry has persuaded the Government to raise spending on flood defences to £800 million by 2011.

Last week, ministers announced plans to construct three million homes by 2020 and insisted that some would have to be built on flood plains. Yvette Cooper, the Housing Minister, said that this was inevitable but warned critics not to “play politics” over the issue. The housing Green Paper said that developments should only be allowed “with suitable protection and mitigation” in areas at risk of flooding.

Insurers insist that all new housing developments should be away from flood-prone areas to ensure that insurance remains widely available.

The Norwich Union spokeswoman added: “We have been in detailed discussions with a number of government departments. The industry is concerned about homes being built in areas prone to flooding.

“We welcome more money going into flood defences but it is not clear whether it will go for existing or new defences. We need clarification. Those houses built on flood plains need to be adequately protected.”

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