Flood insurance – negotiations back on

The government and the insurance industry have renewed efforts to make sure thousands of homeowners are not left with huge repair bills when an existing cover agreement ends next summer.

It was revealed this week that the two parties are in talks over possible solutions to the problems faced when the all-important statement of principles expires next summer.

This is the agreement under which insurers must offer cover to households who have made a claim related to flooding – claims that will rise again following the latest floods – provided the UK government invests in flood defences. Failure to extend the existing arrangements or find a new compromise could leave homeowners in flood-risk properties without insurance, a scenario that could also leave some unable to secure fresh finance for a mortgage.

The Association of British Insurers proposed a scheme where annual home insurance premiums would be capped, with properties with a risk priced above that level still insured, through funds raised by a levy on all home insurance policies.

The initial talks collapsed last month after the government baulked at a solution that would increase premiums for homeowners. Yet failure to resolve the issue could leave around 5,000 homes in Scotland with insurance.

They would face potentially crippling repair bills in the event of damage and would also be left struggling to secure new mortgage finance.

Insurers warned that some agreement has to be reached by the end of this year if the measures are to be in place in time.

Liz Peace, chief executive of the British Property Federation, said: “It would be unforgivable for this situation not to be resolved as a matter of urgency. Universal flood cover shouldn’t be allowed to slip through our fingers.”