An increase in interest rates could hit the household insurance market in 2007, due to the knock-on effect on theft claims, Equity Insurance Group has warned.

Stuart Heath, household underwriter at Equity's Lloyd's arm, Equity Red Star, told Insurance Times: "With interest rates being low and supply being good, if interest rates go up substantially this year, with a high level of personal debt, it could have a direct correlation to higher theft patterns."

The value of theft claims has been falling since 2001, when they totalled over £550m, according to ABI and government figures. In 2004, theft claims cost insurers around £350m, and Deloitte predicted they would total around £300m in 2006.

Heath said the insurance industry must be careful about how it deals with any increase in interest rates:

"With the market currently soft rather than hard it will be about how we manage prices at the end of this year and early next year."

Despite a number of hot, dry summers Heath said he did not expect subsidence claims to reflect those seen in 2003, where claims reached more than £300m.

"We haven't seen an increase in subsidence claims because as an industry we have become a lot smarter at handling them and giving clients better advice on how to deal with the issue," he added.

Equity meanwhile will launch three household products in December through software houses Open GI - formerly Misys - and SSP, before rolling them out through other firms next year.

The insurer's existing Silver product for standard household insurance, Gold product for mid net worth and its new bedroom rated product, will all be available on full-cycle EDI.