People in flood-prone areas may be unable to insure their homes next year, the Association of British Insurers (ABI) has announced.

Its members, who account for 97% of insurance written in the UK, would extend policies for the one and a half million homes and businesses protected from flooding to the government's minimum standard, the association said.

But it could not guarantee the remaining half a million homes and businesses on flood plains would be covered after an agreement between the insurance industry and the government expires at the end of 2002.

Although policyholders in areas where flood defences will provide protection to the government's minimum standard by 2007 will be offered cover, according to the ABI.

And it said insurers would work with policyholders to try to make unprotected properties insurable through the use of flood alleviation devices.

Floods Minister Elliot Morley welcomed Thursday's announcement, and said the government was "forging ahead" with work on both immediate and longer term flood defences.

He said: "The government is meeting its commitments on flood and coastal defence. A lot of work has already been done, there is more to do."

He added: "With all that is being done to manage risk and increase information and awareness, it should be possible for flood insurance to be maintained for the maximum number of properties, including all but the most exceptional of cases."

Climate change

Insurers paid out more than �1bn after floods in autumn 2000.

And with warnings that climate change would cause increasingly severe winter flooding, hundreds of thousands of homeowners fear they may become uninsurable.

On Monday, the UK's biggest mortgage lender, the Halifax, announced it would continue to offer flood cover to Halifax, Bank of Scotland and Intelligent Finance mortgage customers until 2005.

Any premium rises would be capped at 5% on top of standard annual increases, it said.

However, there is no guarantee that people will be covered after three years.