Householders are facing increases of about 30 per cent in home insurance premiums this year, mainly because of spiralling building costs and rising underwriting losses at insurance companies from weather-related claims.

Royal & Sun Alliance, one of the biggest insurers in the household market with about 28 per cent market share, is briefing insurance brokers this week on its plan to increase annual premiums by about 30 per cent.

Other insurers are expected to implement similar increases.

Royal & Sun Alliance said the cost of its average £200 (€254) annual home insurance premium would rise to £260. The company said the price increase reflected the strength of the economy and increases in the costs of settling claims well ahead of general price increases.

Claims costs have been driven up by big increases in building costs, fees for professional services such as engineers, architects and surveyors, and the cost of alternative accommodation when houses were being repaired/rebuilt.

At the same time, the financial performance of home insurers has been hit by increasing bad weather, which has driven up the number of claims, and by large increases in the cost of reinsurance. In the changing market conditions, all home insurers need to readjust their pricing, according to Mr Eamon Hurley from Royal & Sun Alliance. "The day of cheap reinsurance is gone, and claims inflation and adverse weather events are driving up costs. Insurers need to change their pricing models in a changing environment," he said.

Mr Hurley accepted that intense competition between insurers for market share in recent years had kept home insurance premiums at artificially low levels. Industry statistics show that 1999 was the only year since 1995 in which the household insurance market recorded an underwriting profit - £4.2 million. Losses for 2000 could be between £10 million and £15 million.

Royal & Sun Alliance warned that many householders were under insured given the extent of increases in the costs of building, fees and content prices, and home improvements carried out. Meanwhile, employers' body IBEC has rejected the argument by the Hibernian Group and other insurers that sharp increases in insurance premiums for businesses were justified because of increases in workplace accidents. IBEC said figures from insurance companies showed that the number of workplace accidents fell over the three years to 1999.