Rising storm damage claims pushed the household insurance market more than £350 million into the red last year, stoking the pressure for premium increases, according to actuaries Bacon & Woodrow in their annual report on the sector.

Bacon & Woodrow insurance consultant Edward Plowman said household insurance rates needed to rise by more than five per cent above the rate of inflation if the sector was to return to long-term profitability.

1998 was the most disastrous year for the household insurance market since 1991.

Severe weather claims last year were enough to wipe out the profits insurers made during more settled weather conditions in 1996 and 1997.

The worst event of 1998 was the rivers Ouse and Nene breaking their banks at Easter, causing £137 million worth of flood damage in Yorkshire and Northamptonshire.

Further floods and storm damage in the west of England last October produced another £100m worth of claims.

However, these freak events pale in comparison to the £2.8 billion damages resulting from severe storms in 1990.

Edward Plowman, insurance consultant at Bacon & Woodrow, said: "The weather in 1998 was bad for UK household insurers, but not bad enough to justify the losses that have been made on the market. Insurers need to put up premiums to bring the household market back to genuine profitability, but they are showing few signs of doing so."

Results for 1999 could potentially be brighter, assuming there are no significant losses in the remaining part of the year. But rates still need to be raised as investment income on premiums and reserves have been eroded by the trend for low interest rates.

The overall picture of the household insurance market was not totally bleak for insurers, Plowman said.

Theft claims were more than 40% lower than at the height of the last recession and should continue at this level for as long as the prevailing economic climate remains favourable.

Plowman added that a premium rise might be good news for policyholders since it could encourage them to shop around for a better deal, avoiding generous commission charges levied by mortgage borrowers.

At present, shopping around was much less common for household insurance than motor, because 70% of homeowners have their home insurance tied to lenders.