LONDON (Reuters) - The government has refused to bankroll a fund to subsidise insurance for households in flood-prone areas, derailing talks over the scheme and potentially leaving 200,000 homes without protection.
The government has told insurers it will not provide an overdraft to the proposed fund, leaving talks over the plan deadlocked, the Association of British Insurers said on Monday.
The impasse comes amid renewed heavy flooding across England, with 500 properties affected since Wednesday and 70,000 more at risk, according to Britain's Environment Agency.
Britain has been hit by several severe floods over the past ten years, with one in the summer of 2007 costing insurers about 3 billion pounds ($4.8 billion).
"The government has indicated it will not provide any temporary overdraft facility for the insurance industry's not-for-profit scheme, which makes it very difficult to go ahead," said Nick Starling, the ABI's director of general insurance.
Reuters reported last week that a government refusal to provide a financial backstop had cast doubt over the ABI-backed plan, dubbed Flood Re, after months of talks.
The owners of about 200,000 British homes in areas at risk of flooding can afford insurance only because of a deal under which insurers agreed to cover them at a loss in return for a government pledge to boost spending on flood defences.
That agreement expires in July, and the Flood Re scheme had been intended to take its place. Insurers say its successor needs to be agreed by Christmas at the latest to give them time to adapt.
The Environment Agency had issued 193 flood warnings, indicating that a flood is expected, as of 1330 GMT on Monday, with central and south-west of England most at risk.
The floods are "really disastrous, traumatic" for those affected, said Paul Cobbing, Chief Executive of the National Flood Forum, a charity for communities at risk of flooding.
"It just seems ridiculous that we've come to this impasse - we need something in place that provides accessible and affordable insurance, and we need an agreement now."
A spokeswoman for Britain's Department for Environment, Food and Rural Affairs, the ministry responsible for flood policy, said the government still aimed to find a way of providing affordable insurance for homes that are at risk.
"We're disappointed the ABI has chosen to make this statement," she said. "We're committed to continue working with the industry to find a solution."
Under Flood Re, all households would pay a levy of up to 20 pounds ($32) a year into a fund that would cover claims from high-risk homes.
The government would initially act as insurer of last resort to guard against an extreme flood that overwhelmed the fund, but taxpayer support would be withdrawn once the fund had accumulated enough cash to handle any likely flood on its own.
The insurance industry was already facing a bill of about 500 million pounds this year after heavy rain brought floods in June. The latest flooding could boost total claims to 1 billion pounds, accountancy firm PricewaterhouseCoopers said last week.
Britain is the only country not to provide financial support for those most at risk of flooding, according to the ABI, although this is disputed by the government.
Under an alternative scheme drawn up by insurance broker Marsh, insurers would pool their residential flood exposure across low and high-risk areas, limiting the scope for big payouts, and making the risk attractive to reinsurers.
Reinsurers have historically refused flood cover to British insurers because most are exposed to at least one high-risk area.
Britain's biggest home insurers include Aviva, RSA and Direct Line.
($1 = 0.6246 British pounds)
Reporting by Myles Neligan; Editing by David Goodman and Mark Potter