The economic downturn is likely to bring an increase in theft, malicious damage and arson claims. Insurers are already experiencing an increase in property claims and also an increase in large losses.

Gregor Elrick, head of property at AXA Insurance, says: "Both malicious damage and arson tend to go up in a recession as premises are left unoccupied and unprotected by failed businesses, making them easier targets for vandals. Additionally, arson committed by business owners looking to claim on their insurance can rise in recessionary times.

The volume of breaking and entering crimes has increased by around 13% with around 4% of businesses becoming a victim, which, says Elrick is typical in a recession.

On the personal lines side, official crime figures show a 4% increase in burglaries for the second half of 2008. An increase in theft rates traditionally accompany a recession.

Recessions also increase inclination to claim. Customers are more likely to make smaller claims that they would normally pay for themselves.

The industry is expecting to see an increase in fraud, both at underwriting and at claim stage. This will increase insurers' costs.

The effects of the severe weather conditions experienced over the last few years are still being felt. The storms and floods of 2007 cost the UK insurance industry £3 billion. On its own, hurricane Ike in the US is estimated to have caused losses of approximately $18 billion.

Changes in local authority legislation and planning permission requirements, such as energy efficiency and environmental considerations may have time and cost implications. Also, changes in construction techniques are designed to protect life not property.

Motor rates peaked in 2003, but have been falling since then despite the fact claims costs went up over the same period.

The cost of personal injury motor claims has increased and can make up to 50% of claims payments. Claims and their associated legal expenses rose by around 22% last year to £6.16 billion, according to the AA. The cost of whiplash injury alone represents around £66 for every car insurance policy sold, says AA.

The cost of pursuing claims can often exceed the compensation. Cases worth less than £2,000 have led to claimant costs of up to £7,000, according to figures from the Department of Constitutional Affairs.

This is further impacted by 'crash for cash' claims. For example, two men were sentenced earlier this year who had made bogus insurance claims between 2005 and 2007, worth almost £3 million.

Advanced technology means that cars are now highly equipped with airbags and parking sensors, for example, which means repairs are becoming more complex and costly. The AA estimates that there will be a 6% increase in the cost of repairing accident-damaged cars this year.

Main dealer labour rates increased by 5% between the summer of 2007 and the summer of 2008, according to Motorconsult, supplier of service, maintenance and repair data. This increase continues a long-term upward trend and follows an increase of 5% in the previous year.

Bob Bouldin, spokesperson for Motorconsult, points out that nowadays cars are bigger and faster than they used to be and have bigger brakes and bigger tyres, which are very expensive.

High legal costs account for around 40% of the total cost of an average liability claim and in some low-value claims can easily exceed the amount of money at stake.

The sector began its recovery in 2007 after many years of losses, says the ABI. However, at the same time as premiums began to increase, claims rose by 5.1% to £2.3 billion between 2006 and 2007, it says.

Long-term disease risks as an area of claims growth, particularly by asbestos-related incidents. For example, the annual number of new cases of asbestosis, according to the Department of Work and Pensions (DWP) Industrial Injuries and Disablement Benefit (IIDB) scheme (which compensates workers for prescribed occupational diseases), has risen erratically since the early 1980s, with the trend strongly increasing since the early 1990s, reaching the level of 690 in 2006. There were 390 new cases of disablement benefit for diffuse pleural thickening in 2007.

Life expectancy for both men and women has continued to rise, according to the Office for National Statistics. In 2002, life expectancy at birth for females born in the UK was 81 years, compared with 76 years for males. This contrasts with 49 and 45 years respectively at the turn of the last century in 1901. Projections suggest that life expectancies at these older ages will increase by a further three years or so by 2020. The expectation of life for people at 70 and 80 has also gone up. At present there are more people aged 70 and 80 than ever before.

This leads to a longer expectation of a working life and more compensation for those unable to work. Greater demand for long-term care will also push up future care costs.

Emerging risks. Every year new areas of claims emerge such as workplace stress, obesity and exposure to certain substances. For example, the Government predicts that if no action is taken on obesity, 60% of men, 50% of women and 25% of children will be obese by 2050.

In the past, insurers relied on investment income on policyholders' premiums to keep costs down. But market conditions have resulted in a drastic reduction in investment income, meaning this is no longer a way to support profits.

It has become more difficult for insurers to support poor underwriting results through investment, says the FSA's Financial Risk Outlook (FRO) 2009 report. It states that if insurers do not maintain pricing discipline in the current economic environment, they may have difficulty maintaining adequate capital.