More than 200,000 houses in the UK could lose their flood cover if the insurance industry and the Government fail to negotiate a special agreement in the next 18 months.

The Association of British Insurers (ABI) wants the Government to share the risk of covering the most vulnerable properties.

The current agreement, implemented in 2008 and expiring in June 2013, leaves insurers footing the bill for flood risk while the Government improves flood defences.

ABI Director-General Otto Thoresen says insurers “are running out of time to make sure people in high-risk areas are properly protected from the devastation flooding can cause”.

The Flood Insurance Statement of Principles agreement will not be renewed because it “grossly distorts the market and people in lower-risk areas pay more to subsidise those at higher risk”, Mr Thoresen said.

He says customers in high-risk flood areas remain tied to their existing insurer, while the insurers that do cover flood have ended up with a disproportionate number of high-risk properties.

A spokesman for the Department for Environment says the UK Government wants flood insurance to remain widely available, “and is continuing to work with the insurance industry to ensure that this will be the case”.

“Over the next few months we will consider whether there are feasible value-for-money ways of targeting funding support to those most in need,” he said.

PricewaterhouseCoopers sustainability and climate change team partner Jon Williams says the insurance industry is frustrated by the Government’s stand on flood defences and stronger construction standards.

“Both of these require Government intervention, from an infrastructure investment and planning perspective,” Mr Williams said.

“One solution could be for certain infrastructure to earn a regulated rent from government – in effect paying for flood defences to be there over their lifetime rather than upfront. This could be an attractive utility-style and long-term asset with a regulated return.”