The UK flood insurance crisis has sunk to new depths, with the industry and Government unable to even agree on the status of negotiations.

The Association of British Insurers (ABI) says talks to find a long-term flood insurance solution for high-risk households have reached an impasse, but the UK Government denies this.

Prime Minister David Cameron told the UK Parliament negotiations “are under way”.

“I want us to get a resolution so that insurance companies provide what they are meant to provide, which is insurance for people living in their homes who want proper protection.”

Months of intensive negotiations have taken place to agree a replacement for the Statement of Principles, which was established in 2000 as a temporary measure providing cover for 200,000 high-risk homes. It expires on June 30 next year.

The Statement of Principles requires insurers to offer renewals to high-risk customers at a discount of nearly 50%, providing there are plans in place to reduce the risk within five years.

But with Government spending on flood defences falling victim to the UK’s parlous economic situation, the ABI has been pushing for a new arrangement, known as Flood Re, which involves the establishment of a non-profit insurance fund to cover the properties.

Under the Flood Re plan all UK home policyholders would be charged an extra £10 ($15) levy, which would be paid into the fund.

The ABI is seeking a temporary overdraft from the Government to pay claims in the event of extensive flooding in the fund’s early years, before its reserves have been built up.

The association says the overdraft would not go directly to insurers and would be repaid with interest by the fund the following year.

But Environment Minister Richard Benyon says he does not want a “huge burden” on insurance premiums across the UK, while Government sources reportedly say the sticking point in talks is the level at which flood risk liability would be transferred to the Government as an insurer of last resort.

ABI Director of General Insurance Nick Starling has described Flood Re as “simple and elegant” and says it’s “the only alternative is a free market”.

“No country in the world has a free market for flood insurance with high levels of affordable cover without some form of government involvement,” he said.

“This stable and sustainable system would ensure flood insurance remains widely available, with home insurance for high-risk houses set at an agreed maximum.”

The UK experienced its worst floods in five years during the northern summer, with the period between April and June the wettest since records began.

Ratings agency Fitch has backed Flood Re, while Standard & Poor’s says a pool “seems most politically and commercially acceptable”. But it suggests the £10 levy may not be enough to withstand a succession of flood event years.