Storm breaks over flood insurance

Halifax, Britain's biggest mortgage lender, will today accuse the government of dragging its feet over a deal to provide insurance cover for the estimated 2m homes in England and Wales at risk from flooding.

The Treasury has until the end of the year to agree an adequate flood defence plan before the Association of British Insurers starts to exclude areas of high risk from cover by either not offering quotes or setting prohibitive terms.

Both sides had hoped to reach an outline deal by the end of this month. The insurance industry is accusing the Treasury of failing to keep its side of the bargain and the government fears the industry will use the issue to dump high-risk cover.

Halifax will today use the announcement of a new policy for homeowners in flood risk areas to attack the government.

"We believe there needs to be a short and focused debate which must start soon if we are not to face the appalling prospect that many people will not have cover," a spokesman for Halifax said.

"The government has not done enough to put flood protection in place, despite the fact that there is a lot of money swilling around in the Treasury coffers, thanks to homeowners."

Severe flooding has become an almost annual problem in some parts of the country, with the bill running into hundreds of millions of pounds.

Accusations of foot-dragging were rejected by the Treasury, where a spokesman was optimistic that agreement would be reached by the end of the year: "We are in discussions with the ABI. Progress has been made."

Negotiations between the two sides are understood to be at a delicate stage. The main sticking point appears to be what the government plans to do with the £150m a year it has earmarked for flood defences.

The ABI is insisting that its members have some say over the use of the £150m before it extends a two-year agreement on cover.

"All of the big insurance companies have made it clear via the ABI that considerable improvement needs to be made in flood defences," a spokesman for the association said. "Insurance is there to cover for risk, not for certainties."

After the floods of autumn 2000, the ABI agreed to maintain flood cover for two years to give the government time to outline a defence strategy.

Sources close to the discussions say there is an offer on the table, which will be discussed at a meeting in the next couple of weeks.

Halifax will announce today that it is to continue to provide flood cover for its 1.8m homeowner customers even if the government and the ABI fail to reach an agreement.

The commitment, which in cludes a guarantee that premium increases will be no more than 5%, will apply to all Halifax, Bank of Scotland and Intelligent Finance mortgage customers who insure buildings or contents with the company. It will also apply to customers who transfer their mortgages to the company before the end of the year.

The ABI spokesman said he would not be surprised if other insurers followed suit.