200,000 homes to be left without flood cover

Up to 200,000 homes in flood-prone areas may have their insurance cover withdrawn, Britain's biggest insurance companies said yesterday.

Cover would still be provided for most of the 1.8 million homes on flood plains, but those at most risk would be looked at on a "case-by-case" basis, the Association of British Insurers (ABI) said.

The ABI's members, which account for 97 per cent of the business in the UK, are also likely to put up premiums to reflect the increased chance of flooding.

John Parker, the ABI's head of general insurance, said that the prospect of a withdrawal of cover would create a "strong incentive" for communities to lobby for stronger flood defences from the Government.

The new arrangements, which will take effect from January 1 next year, will replace the current moratorium under which insurers agreed to continue offering cover to all policy-holders in risk areas.

The moratorium was agreed in the wake of the disastrous floods of 2000 in return for substantial new funds from the Government to repair and strengthen flood defences.

In the light of an extra £150m pledged this year by ministers, the ABI said that it would maintain flood cover for homes and businesses that were earmarked by the Environment Agency for improved defences in the next five years.

But it made clear that up to 200,000 homes in the worst areas would have to be individually assessed to see if cover ought to be withdrawn.

In its new "statement of principles" for flood insurance, the ABI said that most homes and businesses could have cover transferred to new owners. However, it suggested that in the case of premises that are most at risk, cover would not be transferred, and it warned policy-holders to contact their insurance companies before even thinking of selling. Many homeowners in flood areas face negative equity and a lack of potential buyers because of their location.

In the worst cases, the ABI said that companies would work with policy-holders to see if flood alleviation devices, which range from sandbags to hi-tech plastic water barriers, could be used.

Mary Francis, the ABI director general, said that cases where insurance could not be guaranteed were exceptional and most firms wanted to work with customers.

"We cannot guarantee in every case that insurance will be available. There are properties that flood repeatedly and claims can come in at £10,000, £20,000 a year and it is not economical," she said.

"It is now important for our customers and the industry that government promises are turned into action. The faster the plans are implemented, the greater benefit for all," she said.

The Department for Environment, Food and Rural Affairs (Defra) said that the ABI's statistic of 200,000 homes most at risk was just one estimate and the real figure was likely to be much smaller. Better flood mapping was being developed, along with plans to identify and help those most at risk of repeat flooding.

Elliot Morley, the floods minister, said fresh efforts to improve defences meant that all but a tiny minority of homes would continue to be protected.

"The Government is meeting its commitments on flood and coastal defence," he said.

John O'Roarke, the managing director of Churchill Insurance, which has 4.5 million policy-holders, said that his firm would guarantee cover to existing policy-holders, including those in the most high risk areas, but his firm was not interested in taking on new policy-holders in such areas.