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200,000 homes in England and Wales could be left without cover as agreement between insurers and government ends.

Mark King guardian.co.uk

Tuesday 31 January 2012 13.35 GMT

Up to 200,000 homes in England and Wales have been warned they will struggle to obtain adequate flood insurance after June 2013, when the insurance industry's voluntary flood agreement with the government ends.

In 92 constituencies there are 1,000 or more homes at high flood risk, the Association of British Insurers (ABI) said after analysing the latest Environment Agency flood data.

Boston and Skegness in Lincolnshire is the constituency with the most homes at significant risk of flooding, with 7,550 properties under threat, followed by the Vale of Clwyd (7,339 homes), Folkestone and Hythe (7,196), and Windsor (7,125). A property is defined as being at risk if it has a one in 75 chance of flooding in any given year.

The risk of households being unable to obtain cover is heightened by an ongoing row over who pays for the flood defences needed to maintain protection for the 5m homes at risk across the UK.

Adrian Webb of esure said there had been a "gentlemen's agreement" between insurers and the government since 1961.

"The government of the time said government would be responsible for flood defences, and in turn the insurance industry would include flood cover as standard. At the end of the 1990s it was becoming clear that the government's side of the equation was not being met – and will not be met in future," he said.

The current flood insurance statement of principles agreement with the government, agreed in 2000 as a short-term measure, ends in June 2013. It states that insurers must include flood cover as standard for properties built before 1 January 2009, where the risk of flooding is low; and, crucially, insurers must allow at-risk households who already have flood cover to automatically renew cover with the same insurer, as long as flood defences are planned to be in place within five years.

The ABI's director general, Otto Thoresen, said this "grossly distorts the market" because people in lower risk flood areas pay more to subsidise those at higher risk. "Customers in high risk areas are tied to their existing insurer, and those insurers covered by it have ended up with a disproportionate number of high flood risk properties."

Webb said insurance in general "ensures a flow of money from the fortunate to the unfortunate. But the difficulty comes in areas where flooding isn't accidental or a peril anymore, but a certainty. Then it becomes a redistribution of wealth and not insurance."

The public accounts committee said the government "needs to reach an agreement with the insurance industry urgently and work more closely with it to ensure insurance cover is both available and affordable" – something echoed by Webb. He said the insurance industry needs to have "very strong words with government between now and June 2013."

He added: "The government can't force insurers to compensate consumers for its own failure to invest in flood protection. If an agreement can't be reached one of two things will happen: either cover will become unaffordable in areas where there is a strong likelihood, of flooding or costs will rise for everyone. The areas identified by the ABI would probably be hit first."

In a December 2011 article for the Town and Country Planning Association David Crichton, visiting professor at University College London and at Middlesex University Flood Hazard Research Centre, said an end to the current agreement on insurance would be a good move in the long run, "because flood insurance provides economic penalties to discourage building in flood hazard areas. [But] in the short term, withdrawal of insurance cover is likely to lead to blight and a fall in property values."

Simon Douglas, director of AA Insurance, said some households could soon encounter problems: "Some insurers are telling us that flood-prone homeowners might not be able to renew their cover later this year, because their new policy will extend beyond 1 July 2013: with all the implications for property value and mortgage availability that this implies. That does not augur well for the 5.2 million families estimated to be at risk from flooding."

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