MORE than 500,000 homes could be refused flood insurance unless new prime minister Gordon Brown increases spending on defences in October, insurers have warned.

Firms are already blacklisting customers in high-risk areas by forcing them to cover most or all of the cost of flood damage, according to the National Flood Forum.

It said that excesses – the part of a claim you must pay yourself – in high-risk areas can be as high as £30,000 and could go up by another £5,000-£10,000 after last week’s deluge. However, the average flood claim is between £20,000 and £30,000.

Insurers issued their warning last week as up to 27,000 homes and 5,000 businesses were damaged after the worst flooding for decades in the north of England.

The Association of British Insurers (ABI) has a gentlemen’s agreement with the government to cover 517,000 homes in high-risk flood areas – as long as it raises spending on defences. A high-risk area is one where there is a one in 75 chance of a flood in any one year.

However, the moratorium extends only to homes that were insured when it was agreed in 2002 – in other words, insurers will only continue to cover existing customers. And there is nothing to stop them hiking excesses or premiums.

New customers – those buying a home in a high-risk area for the first time, for example – may be turned down by the main-stream insurers.

A spokesman for Norwich Union, the insurer, said: “If we had a free choice we would not insure any of these high-risk properties.”

To continue with the moratorium, the ABI wants to see a 10% year-on-year increase in flood defence spending in the next spending review in October.

The Department for Environment and Rural Affairs said £600m had been allocated for flood defences this year, although this is an increase of just 1.6% on the previous year’s £590m. And last year’s budget was cut by £15m.

Many flood defence schemes have been postponed for years by government cuts, increasing pressure on insurers to withdraw cover.

Among them is a £100m scheme for Leeds, and others intended for Sheffield, Selby, Hull, York, Thirsk, Northallerton and Doncaster – all places hit last week.

The ABI said: “If the government doesn’t fulfil its part of the bargain by providing adequate funding, clearly it will become harder and harder for insurers to continue to provide cover in the higher risk areas.”

It also blamed last week’s disaster on the water firms and their inadequate drainage systems, especially in urban areas where systems can be more than 100 years old.

The Environment Agency said: “A large amount of the recent flooding has been surface water due to poor drainage.”

Ofwat, the water regulator, argued it had enabled sewerage companies to invest a further £1 billion to safeguard homes.

About 13,700 insurance claims are made each year because of flooding, but last week 8,000 claims were made in a single day. The total cost of damage is estimated at £1 billion by the ABI.

Rachel Evans, 23, a student who owns her home in Sheffield, was among those affected.

She lives with her sister, Susan, 21, also a student, and friend Melissa Hill, 23, a special-needs support teacher. Their house was flooded twice during the recent storms.

“Water just started to seep in from the ground up. We only noticed after a neigh-bour knocked and asked if our basement had flooded,” said Rachel.

Their insurer, Halifax, has agreed to pay their insurance claim of £1,000 for damage to their contents. It will send workers to clean up the mess in the next few days.

There are already signs that insurance premiums for everyone are rising because of the increasing risks of flooding and the failure of government to take action.

It was one of the reasons why premiums went up 6% last year at More Than, the general insurance arm of Royal & Sun Alliance.

Insurance firms said they would not increase excess levels for homes where flooding is a one-off, but they admitted if there were repeated cases that excesses could go up.

More Than said it increases its flood damage excess to up to £2,000 if a property has suffered repeatedly, while Direct Line raises it to up to £1,000 if a homeowner has suffered from three floods or more. Norwich Union was unable to confirm its highest excess for flood-prone homes.

There are also fears that insurers will try to wriggle out of claims by downgrading the value of homeowners’ damage.

Morgan Clark, a loss assessor, said insurance firms can undervalue claims by 30% to 40%.

You can hire a loss assessor for a second opinion. They oversee repairs and mediate between you and the insurer on your behalf. They charge a fee of between 3% to 8%.

HOW TO FIND OUT IF YOU ARE AT RISK

Am I at a high risk of flooding? Flood risk is divided into three categories. A home is in the low-risk category if the chance of flooding is one in 200 or less. Medium risk is a greater than one in 200 chance, but less than one in 75. If the chance is greater than one in 75, you are at high risk. You can call the 24-hour Floodline on 0845 988 1188 or visit environment-agency.gov.uk for information about flood risk in your area.

Will I be able to get flood cover? In low and moderate-risk areas, ABI members offer flood cover in the normal way as part of buildings and contents policies. However, in significant-risk areas where no improvements in permanent flood defences are planned or feasible, insurers will not guarantee to provide cover to new customers.

They will still cover existing customers, although this could be under threat if the government does nothing to improve flood defences.

Without insurance, it could prove hard to get a mortgage and nearly impossible to sell your home.

Not all insurers cover storm damage as standard, so check your policy wording if you live in a particularly vulnerable spot.

I am buying a home in a high risk area. Will any insurer cover me? Confused.com, a comparison site, said houses not covered by big insurers may still be covered by specialists such as Adrian Flux, Delite and Bureau Insurance Services. But the level of excess you pay may be very high. H&R Insurance, for example, can charge an excess of up to half the sum insured, while your premiums could be 150% more.

What can I do to reduce the risks? For £25 the Environment Agency can supply a letter classifying the chance of flooding in your area for insurance purposes, plus details of flood defences planned nearby. This may be useful if you think insurers are overestimating the risk to your property and a second opinion could bring costs down.

If you live in a flood-prone area you could cut your premiums by taking some steps such as investing in your own flood defences such as sandbags. This could cut your insurance by up to 20%.

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