Insurers are set to squeeze existing customers with above-inflation price rises over the next six months as companies replenish their reserves after catastrophic weather cost the industry £1 billion in claims.

Gareth McChesney, of Allianz, one of the largest insurers in the UK, said: “Across the market we expect increases in household premiums of between 5 per cent and 7 per cent, as a result of claims inflation and the climatic nature of household insurance.”

The insurance market in the UK remains competitive but experts say that while insurers will continue to keep prices low to attract new customers, premiums will rise above inflation for existing customers.

Increases are predicted over the next six months as insurers rebuild their depleted reserves following a series of severe weather events, including the floods last summer, which left the industry with a bill for almost £1 billion.

Soaring costs of individual claims are also pushing premiums higher, with insurers sighting labour and material charges as particularly expensive.

Hayley Parsons, of GoCompare.com, a price comparison website, said: “People who automatically renew are being hit more and more. Customers who shop around can find cheaper deals but costs are rising steadily for consumers who stay loyal to one insurer for many years.”

Jennifer Rose, of Confused.com, said: “Over 2007 we actually saw the cost of home insurance premiums fall for new customers by an average of 3.8 per cent, as more households use comparison sites to find a cheaper deal. However evidence suggests this is unlikely to continue in 2008."

In the 12 months up to January this year, home insurance premiums rose 3.3 per cent, according to the AA Insurance Premium Index.

In August last year two of the countries leading insurers, Norwich Union and Lloyds TSB, said they expected premiums to rise by up to 10 per cent, to compensate for the heavy costs incurred across the industry of the summer floods, which generated 14,500 insurance claims with an average cost to insurers of £52,000.

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