Up to two million homes in flood-prone areas could face premium hikes or the possibility of not being able to get insurance cover in the new year.

The sooner the government gives clarity as to which areas are deemed to be high risk, the sooner this uncertainty will end Phil Jenks, Halifax

An agreement between the government and the insurance industry, guaranteeing cover for homes at risk of flooding in return for flood defence improvements, comes to an end on 1 January.

The Association of British Insurers (ABI) has advised its members that although they should aim to offer insurance wherever possible, from the new year premiums charged will reflect the risk of flooding.

About 200,000 homes in areas deemed to be at most severe risk of flooding will be among the first to be affected when it comes to renewing policies.

Deadline day

The Department for Environment, Food and Rural Affairs (Defra) estimates that 10% of the land area of the UK is in danger of flooding.

Insurers paid out more than �1bn ($1.6bn) after floods in autumn 2000.

In the aftermath, insurers asked the government to step up spending on flood defences and to produce a map outlining areas most at risk.

They gave the government a deadline of January 2003 to take action.

To date Defra and other government agencies have made progress with defences but, according to last July's spending review, the really big increases in inland flood defence spending will not kick in until 2004-05.

"The government has outlined a flood defence scheme which should mean most homes at risk being protected to agreed standards. But we appreciate defences do not go up overnight," ABI spokeswoman Emma Grainge told BBC News Online.

Bleak New Year

Homes and businesses are still at risk and insurers are getting twitchy.

Halifax took the unusual step in September of promising its customers continuing cover until 2005.

Company spokesman Phil Jenks told BBC News Online: "Homeowners need to know that they are insured against the real risk of flood damage.

"The sooner the government gives clarity as to which areas are deemed to be high risk, the sooner this uncertainty will end."

The ABI has called on the government to keep to its spending commitments to improve defences and to allow insurers access to flood database immediately.

But for some homeowners the New Year could be bleak indeed as the ABI has said that homes in high risk areas where there are no flood defences planned could become simply uninsurable.