The torrential rainfall that brought flood chaos to large swaths of Britain over the past four weeks could hit the insurance industry with claims worth more than £3 billion and is almost certain to push up premiums for homeowners.

It is the highest prediction yet of the impact of the flood damage, which would see the UK insurance industry hit with record levels of claims.

It comes as Britain's homeowners begin to count the cost of the heaviest flash flooding in more than 60 years amid fears the situation could get worse before it gets better.

Hundreds of thousands of homes in the west of England are likely to be without water for the rest of the week as Gloucester and Tewkesbury feel the biggest effects of the weekend downpours. Over the past four weeks, rain has lashed across England from Yorkshire to the Thames Valley, where residents will remain on high flood alert for the next two days.

Fitch, an agency that rates the creditworthiness of insurance companies, said in a report published today that unless further investment is ploughed into flood defences, insurers could withdraw the provision of cover for some of the 2.2 million properties built on flood plains.

"Fitch believes the flooding may impact the premium rate environment for domestic and commercial property insurance. It is likely to result in a significant hardening of rates in the most affected areas and a general increase in premium rates in the property market as a whole," it said.

The agency said it expected a tidal wave of flood claims to hit revenues at some of the UK's leading providers of household cover. These include Lloyds TSB, Norwich Union, owned by Aviva, and Royal & SunAlliance, the biggest commercial insurer.

Aviva has already predicted claims worth £175 million in the wake of first flood damage in early July. RSA earmarked £55 million at the same time. The cost to both insurers is likely to have increased since then.

Norwich Union said yesterday that it was likely that premiums would rise after it was swamped with customer calls over the weekend.

The Times reported on Saturday that insufficient Government investment and a bill estimated at the time of £2.5 billion would prompt the insurance industry to increase rates by twice the pace of inflation.

Investment worth £800 million a year has been promised for 2011. However, lobbyists for the insurance industry want more detail on expenditure levels before then. Insurers also want Government to be more transparent about measures it has taken to protect properties on flood plains or other danger areas.

The Association of British Insurers, the lobby group for insurers, estimated yesterday that claims would total £2 billion. It has already revised upwards its previous estimate about the flood damage of earlier this month to £1.5 billion, from an initial £1 billion.

Fitch said that its estimate is based on expected late reporting of claims, higher than average amounts and includes damage to cars and interruption to the day-to-day functioning of businesses.

David Stephenson, associate director in Fitch's insurance group, said: "Despite the severity of the recent flooding and the wide area affected, it is not a catastrophe of the magnitude that could impair insurers' capital strength, although it is likely to have a negative impact on earnings."

Fitch said it was possible, but unlikely, that it might downgrade some insurers' credit ratings as a result of the flood claims.

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