The insurance industry is facing millions of pounds in costs and lost revenues after telecoms watchdog Ofcom announced it will ban the use of 0870 numbers.

Many insurers and loss adjusters use 0870 numbers for helplines, such as claims notification.

AXA, for instance, has admitted that the claims and service numbers were "typically" prefixed with an 0870 number. Norwich Union also uses some 0870 numbers.

Callers to 0870 numbers are charged up to 10p a minute, the majority of which can be retained by the company.

Brokers have complained of being kept on hold for long periods of time by insurance companies, who can profit from these numbers.

In February, Insurance Times reported that Ofcom was investigating excessive call charges.

Ofcom had demanded that all companies charge the same rate for 0870 calls as they do for national calls - on BT rates this is 3p per minute.

Those refusing to make the move must disclose the cost of the call without charging the customer.

The changes must be made within 18 months.

Companies will have to change wording in their advertising and other marketing materials. They will also lose the revenues from the premium lines.

Rod Richardson, managing director of communications company T2M Telecom, said the changes could cost the insurance industry millions of pounds.

"Insurers currently earn up to £30,000 a month from the charge. There is a lot of panicking going on," Richardson said.

Brokers welcomed the move, which according to Richardson could save them "hundreds of thousands of pounds" in call charges.

Broker Network chief executive Grant Ellis said: "Brokers hate 0870 numbers. It's basically insurers saying please hold while we make some money from your call. It is a premium rate charge for your business."

Insurers downplayed the impact of the decision. Royal & SunAlliance said its revenues would not be impacted by the change as a third of calls are charged at local rate and two-thirds are free phone numbers.

Norwich Union was unavailable for comment, but earlier in the year said it "hardly uses any 0870 numbers" and made no profit from the premium rate.

AXA was also unavailable to comment.

Ofcom is to look at the cheaper 0845 numbers in 2008.