Deluge of dearer insurance for 5m flood-risk homes

Thousands more could be blacklisted, according to leading insurers.

The estimated £3.3billion cost of dealing with this year's floods is leading many firms to consider inflation-busting premium rises.

Insurance giants have warned that all householders will face higher premiums, but those at risk of flooding are likely to see the biggest increases.

The industry is bracing itself for more claims caused by floods and droughts amid warnings of climate change.

Last year's drought triggered a sharp rise in householder claims related to subsidence.

An informal agreement between the Government and the industry ensures that homeowners who currently have insurance will be able to renew it.

However, this does not stop firms increasing premiums to the point where householders simply cannot afford to pay them.

Insurers have also made clear they will withdraw cover if they feel the Government is failing to maintain and improve flood defences - which the National Audit Office says is the case.

According to a recent investigation, there are serious failures in the Environment Agency's policing of the situation.

The NAO found two-thirds of England's flood defence systems have not been properly maintained.

The UK's largest general insurer, Norwich Union, will be the first to raise its premiums.

Its 4.3million customers will pay an average of ten per cent more when they renew their policies from next week onwards.

The increased charges will apply to all customers, not just those affected by recent flooding.

Other firms are sure to follow suit. Royal Bank of Scotland, the second-largest insurer, confirmed it would raise premiums, but would not say by how much.

The company owns several wellknown insurance brands including Direct Line, Churchill, Privilege and Tesco Personal Finance.

A spokesman said: "We do recognise that premiums will rise, and that goes for all RBS brands."

However, consumer groups are angry that the extra charges were suggested at the same time as RBS revealed its profits for the first six months of the year were £5.1billion - up £500million on the same period last year.

Lloyds TSB said it is too early to say whether it will increase its premiums.

A spokesman said: "The clean-up operation is under way and any impact on premiums at this stage is too early to call."

Aviva, which owns Norwich Union, said the floods - brought about by the wettest summer since records began - will cost the firm £340million.

It stressed other factors have also contributed to the price increases.

"The industry as a whole has seen pretty flat premiums in household buildings and contents market for around ten years," said a spokesman.

"Premiums have been under review for some time."

She added that the increase is also down to Britain's passion for DIY and expensive gadgets.

"When things go wrong, they've got flat- screen televisions and expensive flooring. So when there is damage, it's costing us more."