Householders could face further rises in insurance rates to pay for the effects of climate change, the boss of Norwich Union Insurance indicated yesterday .

Householders could face further rises in insurance rates to pay for the effects of climate change, the boss of Norwich Union Insurance indicated yesterday.

The insurance giant has already announced plans to hike bills by 10pc this year, and NUI chief executive Igal Mayer admitted there could be more rises in the future if bad weather became more commonplace.

He said the increases would be greatest in areas of the country prone to flooding, but every premium would have to rise.

Mr Mayer's comments came as NUI's parent company Aviva reported an 8pc drop in operating profits for the first half of 2007, largely due to the cost of flooding in the UK.

Overall group profits slipped from £1.7bn last year to £1.54bn this time.

Aviva said its loss from the flooding which it described as "the worst floods in living memory", reached £225m by the end of June, with July's floods in the Midlands and South expected to add another £165m.

In response, NU has announced it is increasing household premiums by 10pc.

Mr Mayer said half of the rise had been planned before the floods, to take account the increased cost of insuring houses, with the other half because of the rise in weather-related claims.

He said: "We were already looking to raise rates 5pc. That is because houses now cost more to insure.

"There are more electrical items, plasma televisions, better fittings and furniture. There is more wooden flooring which costs more to replace than carpets, and there are more bathrooms.

"The other 5pc is down to the increase risk of flooding. There is something happening with global warming and we have needed to look at how we price our product."

Mr Mayer said he believed NU had not overreacted by raising rates by 10pc, and said future weather trends would determine whether more rises were needed.

"We will have to see what happens," he said. "I would rather see smaller steady rises at intervals over the next few years rather than a big rise."

Mr Mayer said the insurance industry would be working to educate householders on how to protect their properties from flood damage and would lobby government for more investment in flood defences.

He praised the efforts of staff, including the 3,000 who work at the headquarters of NU Insurance in Norwich.

"I'm proud of our team and our response," he said. "We doubled the numbers on the phones, brought in expert loss adjusters from the UK and Europe, arranged temporary housing and temporary kitchens," he said. "For a large number of our customers it will be weeks or months before they are repaired."

Rival insurance company Axa yesterday revealed that the June floods and storms at the start of the year knocked a third off interim earnings at its UK insurance arm.

The group forked out £78m for the first set of floods which, when combined with a £37m bill for January storm claims, saw total UK insurance underlying earnings drop to £83m.

Axa expects the July floods to cost it a further £120m and said it too would be raising premiums.

A video interview with Aviva group chief executive Andrew Moss, right, can be viewed on the website at www.edp24co.uk/ business

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