The e-commerce revolution could upset signs of hardening rates in the UK's £4.9 billion household insurance account in 2000, analysts warn.

Household is on target for profit in 1999 (an operating ratio of about 98%) due to benign weather but will need to harden another five per cent for long-term profitability.

The account is three times riskier than motor because of the unpredictability of the weather.

In a recent survey by actuaries Bacon & Woodrow, electronic distribution was the number one concern to household insurers.

Banks and building societies, which hold about of 40% of buildings insurance, are expected to start selling cover on-line.

"Research in the US found that it cost less than a tenth of a call centre's operating costs to sell insurance on the internet," said Pricewaterhousecoopers' general insurance consultant Paul Delbridge.

"It is relatively easy for banks and building societies, as well as direct insurers and composites with direct arms, to sell household insurance on the net."

Insurance sales volumes on the internet are expected to remain comparatively low in the short term, but the door is left open for a low-cost operation to start building a winning internet brand and take advantage of the increased volumes in the future.

"The internet is rapidly opening up and further experimentation is now dangerous unless carefully planned," Mike Wilkinson, senior consultant at Bacon & Woodrow commented.

Some composites, such as Norwich Union have tried to implement sporadic rises in the household account.

But the insurance market has been concentrating on motor where a series of new claims factors has been the catalyst for spectacular premium rises.

Norwich Union marketing manager Derek Plummer expects the UK household account to follow suit in 2000, although to a far lesser degree.

"2000 will be the year when prices will definitely go up for buildings and contents insurance, by as much as ten per cent," he says.

CGU domestic underwriting manager Martin Scott agrees but warns that further consolidation in the market could lead to a fresh round of price cutting.

"Companies often develop new strategies after a merger or takeover," he said.

"And the chances are that there will be further consolidation in the market."

However, Bacon & Woodrow says the UK household account is unlikely to be a real attraction for UK-based consolidation because of the problems of aggregating risk.

It might, however, be attractive for an overseas-based insurer without significant UK exposure.

Insurers are also expected to continue to improve their assessment of risk this year. More insurers will define risk in terms of the whole postcode.