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By Simon Challis

LONDON, June 29 (Reuters) - British insurers said on Friday they expected the cost of claims from floods this week to reach 1 billion pounds ($2 billion).

The Association of British Insurers (ABI), the UK industry's trade group, said this figure could rise if more properties are affected by further flooding.

British authorities have issued new warnings about heavy rain over the coming days following the deaths of four people in flooding caused by Britain's wettest June on record.

Homes and businesses across the middle and northern region of Britain have been hit and transport routes have been disrupted.

Insurance companies have put in place crisis action plans, including sending staff to the affected regions and bringing in additional equipment from abroad.

The state of Britain's defences to protect some two million homes and businesses and four million people at risk from flooding has come under the spotlight this year.

A parliamentary report earlier this month said defences were inadequate in the face of more frequent and heavier storms and rising sea levels due to global warming.

The report, by the National Audit Office, said the Environment Agency, responsible for managing the country's flood defences, said must focus more consistently on improving the condition of the UK's highest-risk flood barriers.

Insurers -- who unlike their rivals in most other countries, still cover against flooding in standard policies -- have called on the government to increase its annual spending on improving flood defences to 750 million by 2011.

"This is a timely reminder of why that is needed," Nick Starling, director of general and health insurance at the ABI, said in a telephone interview.

HIGH WEATHER CLAIMS

Insurers, who pay out on average around 800 million pounds a year in weather-related claims, have already been hit hard by winter storm Kyrill in January, whose hurricane-force winds left a swathe of destruction across northern Europe.

UK insurance claims from Kyrill have been put at around 350 million pounds by the ABI.

Insurers, who tend to pay out between 15,000 pounds and 30,000 pounds on average for flood claims, face higher numbers of such claims in future due to the effect of global warming and substantial property development in flood-prone areas.

Many parts of the the northern English city of Sheffield were left under water after heavy rains this week.

"You're going to see this repeated in a lot of cities across Britain in future," said Robert Muir Wood, chief risk officer at Risk Management Solutions, which models insurers exposure to a wide range of perils.

Poor planning policy has seen substantial property development in flood-prone areas.

Measures have been put in place in many cities to mitigate the risk of flooding, such as channels to take excess water from swollen rivers, but are likely to be inadequate in the most severe deluges, said Muir Wood.

Land that was previously left untouched to act as run-off areas in the event of severe floods has since been built on, said Muir Wood.

"The insurability of these locations is an issue on which the industry has kept its patience so far, but there could come a time when people can't get cover in those locations," said Muir Wood.

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