INSURANCE companies have warned they will not extend a deal with the Government that has guaranteed thousands of households can buy cover against flooding unless Ministers show they are serious about talks over a new agreement.
The current deal signed by the last Government is due to expire at the end of June and Ministers and the insurance industry have so far been unable to agree a replacement.
Known as the “statement of principles”, the last deal committed the Government to investing in flood defences in return for insurers continuing to cover high risk homes.
Without a deal in the coming weeks it is feared insurance companies will significantly increase premiums or even make cover unavailable for up to 200,000 homes.
Matt Cullen, policy adviser at the Association of British Insurers, said: “If we get to a position where we have an agreement, then it is going to take longer than until the end of June to implement that agreement.
“Inevitably there would be transitional arrangements in place to make sure customers don’t lose out.
“But there is a world of difference if we still don’t have an agreement, in which case we can’t just keep renewing the statement of principles ad infinitum. We have to be clear there is a risk of us going to a free market.”
Mr Cullen said if just one of the major companies decided not to offer cover that could leave more than 50,000 homes struggling to find insurance.
He was speaking at a conference organised by York Council leader James Alexander yesterday following floods in the city last year.
The conference heard that while Yorkshire has areas prone to flooding, it also has communities in those areas that because of poverty and other factors find it harder to recover than other parts of the UK.
Speaking at the event, Shadow Environment Secretary Mary Creagh accused Ministers of playing “Russian roulette” on the issue which could leave some households unable to sell their homes as mortgage providers refuse to lend on properties that cannot be insured.
She said: “There are some very very real economic impacts from this Government’s approach which has totally failed.
“Lenders could impose very high rates on mortgages on properties in flood risk areas or lenders could hold more money against the risk of default, taking the money out of the economy at a time when the Government has actually been printing money and trying to pump it into the economy.”
The insurance industry is proposing the creation of a fund paid for by a levy on all home insurance premiums that would be used by companies to cover high risk homes.
However it wants the Government to underwrite the fund in case it is hit by a high number of claims before it has built up reserves and also to ensure Ministers continue to have an incentive to invest in flood defences.
Paul Cobbing, chief executive of the charity National Flood Forum, said it was already receiving calls for help from households where premiums had doubled or trebled. “I have become particularly worried over the last few months because we have not heard anything on the way forward since last July.
“Just around the corner is the potential for a completely different world where potentially a lot of people, vulnerable people, are put at risk.
“It is not good enough. We need solutions and pretty quickly. It is serious for all of us because the consequences of not making decisions are people will suffer,” he said.