The scheme – Flood Re – was due to start in the summer of 2015, but both sides have spent years bickering over who pays for what and the rows are still continuing.
Tens of thousands of homes are at risk from floods and insurers are expected to hike premiums for them after the recent storms and surging tides.
The Association of British Insurers (ABI), the trade body for home insurance firms, has agreed to extend cover to homes in flood risk areas while negotiations with the government continue – but not to keep the cost down.
One of the key points about Flood Re was the agreement would cap home insurance premiums, but the protracted discussions are leaving homeowners without this financial pledge.
“They’re going to be paying higher premiums and excess levels until the new system comes in,” said Graeme Trudgill, executive director at the British Insurance Brokers’ Association.
Flood Re aims to set up a fund to keep costs down for homes in flood risk areas by setting up a fund to subsidise claims from a £10 levy on every home insurance policy sold.
However, insurers are arguing about who should pay for a flooding catastrophe, which is expected to strike the country once in every 200 years.
Flood Re does not include a provision and insurers are pushing the government to agree to pick up the tab for such an event.
ABI lawyers say the wording of the agreement is too soft to give insurers an absolute guarantee of the government paying, even though Flood Re is not designed to last more than a few years and is unlikely to see such a flood catastrophe.
Insiders also revealed the government and the ABI are at odds over who takes any surplus funds from the levy when the Flood Re agreement expires and who pays for flood claims before enough money is collected by the levy to cover the costs.
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