Remark comes as agreement ensuring flood-hit householders can buy cover for their homes is due to expire in June 2013
Householders at risk of flooding should take responsibility for preventing future damage to their homes despite the fact that this may not reduce the cost of their insurance or even guarantee that they can buy flood cover, the government has said.
Richard Benyon, the minister for natural environment and fisheries, confirmed that a five-year agreement between the insurance industry and the government to ensure flood-hit householders can buy flood cover for their homes would not be renewed when it ends in June next year.
"Renewing [the agreement] would not solve the problem," Benyon said at a conference on flooding on Wednesday afternoon.
"The current agreement does not apply to the majority of households at significant flood risk, nor does it apply to homes built since January 2009. It provides no universal guarantee of flood cover, as many claim it does. Nor does the agreement influence the pricing of policies."
The agreement, known as the Statement of Principles, is crucial for those households that have already been flooded as it means that insurers will continue to provide cover for existing customers, albeit at a higher premium, as long as the government continues to improve flood defences.
However, following a substantial investment in flood defences by the Labour government, the current government has cut funding.
The insurance industry believes the government has now reneged on its part of the deal and consequently it does not want to continue with the agreement, a situation that leaves thousands of households at risk of becoming uninsured by next summer.
Benyon said households should instead be encouraged to invest in their own flood defences, including the installation of air brick covers, non-return valves and seals for cat flaps.
Referring to a review of the government's scheme that provides home surveys for households at risk of flooding he said: "The review has shown that property-level protection is cost-effective and the study has underlined the practical help and emotional reassurance that this form of protection gives to people who are at risk of flooding."
However, he will also acknowledge in his speech that householders who improve their properties may still be unable to afford insurance.
"The lack of recognition by insurers of property-level protection is still a significant barrier to the wider take-up of such measures," he said.
"This is just one of the reasons why we are working together with the insurance industry towards the announcement in the spring of a new shared understanding which sets out more clearly what individual customers can expect from their insurer, and from government."
It is unclear what the "shared understanding" will constitute, but Benyon will make it clear this afternoon that the government will not subsidise households at risk of flooding.
In other countries, flood risk is covered by the government or a partnership between the state and the insurance industry. In the US, for example, catastrophic flooding is typically excluded from private insurance policies for high-risk areas and is covered by a federal national flood insurance programme.
The programme aims to make flood insurance available to those in areas of high flood risk. In France, the insurance industry collects a compulsory premium for natural disasters that is standard in policies and which is charged regardless of the level of risk. The state acts as the re-insurer and hence guarantees payments as the insurer of last resort.
The Association of British Insurers (ABI) said at the conference that it has put a proposal to the government that would see flood insurance offered through a pooling mechanism.
"Insurers will continue to manage most flood-related claims – helping people to get their lives back together following a flood. And entry into the scheme would be set at an agreed threshold," said James Dalton, assistant director of general insurance at the ABI.
"There would be no significant change to the way customers access insurance and a more competitive and innovative insurance market should emerge over time. The model allows for property-level resistance and resilience measures to be taken into account by insurers."
He added: "Naturally, how the government chooses to provide the support necessary for the scheme is up to them, but it could easily be funded by a small and formalised contribution from those purchasing home insurance."
The Joseph Rowntree Foundation has also released a report at the conference that argues against insurers pricing out flood-hit households purely based on risk and calls for further government intervention.
"The purely market-based alternative threatens to leave many thousands of properties uninsurable, leading to extensive social blight," its authors say, concluding that "there is an overwhelming case for rejecting a free market in flood insurance after 2013".
Charles Tucker, chairman of the National Flood Forum, the charity running the conference, said: "We believe this gives overwhelming weight to the case for government to step up to the plate to ensure that the market in flood insurance is fair and equitable. On present evidence they need to do more."
Gavin Shuker, the shadow minister for water and waste, said: "'This Tory-led government is playing Russian roulette with people's homes and livelihoods. Catastrophic flood risk is something we all need to tackle together.
"Ultimately, catastrophic risk resides with us all – a denial of this basic political principle is like trying to deny gravity. It is short-sightedness of the worst kind. We need leadership from government in ensuring the flood investment is made, and to put in place a framework that will ensure high-risk homes are able to access the protection they need."
What other countries are doing about flood risk
France: There are constitutional guarantees of the principle of solidarity for natural disasters. The preamble to the 1946 constitution says: "The nation shall proclaim the solidarity and equality of all the French people with respect to burdens resulting from national disasters." In practice, insurance is provided through a partnership between the state and the insurance industry. The insurance industry collects a compulsory premium for natural disasters that is standard in policies and which is charged regardless of the level of risk. The state acts as the re-insurer and hence guarantees payments as the insurer of last resort. Insurance payments are made in the event of a state announcement of a state of natural catastrophe. Similar solidarity-based models of insurance involving partnerships between the state and insurance industry operate in Belgium and Spain.
Netherlands: Flooding is typically excluded from insurance policies in the Netherlands. Under the Calamities Compensation Act (1998), the state is responsible for losses due to floods which are not covered by private insurance.
Iceland: The country operates a compulsory insurance regime for natural disasters including floods under a public insurance company, Iceland Catastrophic Insurance.
Germany: Major flooding is principally covered by public compensation packages. Private risk-differentiated insurance is available but there is very low take-up of such insurance.
USA: Catastrophic flooding is typically excluded from private insurance policies for high-risk areas and is covered by a federal national flood insurance programme. The programme aims to make flood insurance available to those in areas of high flood risk – "Special Flood Hazard Areas". It offers insurance to those within communities that are part of the programme, where insurance is conditional on the communities adopting plans that reduce future flood risks.