While the disastrous floods of summer 2007 were obviously devastating for all those whose homes were destroyed or damaged, they were also a disaster for household insurers. According to a new report by independent market analyst Datamonitor, household insurers suffered an estimated loss of over £300million in 2007 due to the severe flooding experienced in the summer. However, the market is forecast to return to a profitable state in 2008.

The June and July floods are estimated to have cost insurers around £3 billion and when added to the other claims made throughout the year for theft, fire and subsidence, Datamonitor estimates that gross household insurance claims costs were in excess of £4billion. While a proportion of this cost will be passed to the reinsurance industry, the bill for primary insurers will be enough to drag the market from a profit of £167m in 2006 to a loss of over £300m in 2007

However, Datamonitor forecasts that the household insurance market will return to profitability in 2008 much to the relief of many insurers. Despite the market making significant losses in 2007, premium rates increased only marginally over the entire year and Datamonitor is anticipating stronger rate rises in 2008 under its neutral scenario. Assuming that claims costs return to normal in 2008, Datamonitor predicts an overall profit for the market.

The number of consumers purchasing their household insurance online has increased steadily in recent years. The use of price comparison sites and aggregators such as confused.com and moneysupermarket.com has also grown, bringing greater price transparency in the market. Household insurance is therefore in danger of becoming a commoditised product such as private motor insurance, with little to distinguish between products other than cost.