Homeowners and businesses in flood-prone areas of West Yorkshire are at risk of being left without any insurance.
The insurance industry has confirmed that it will not renew an agreement to maintain flood cover as standard in home insurance policies when it expires in 2013.
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One West Yorkshire MP today warned the move could prevent buyers in some areas from obtaining mortgages.
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Following the devastating floods of 2007, the insurance industry agreed to provide insurance to the "vast majority" of homes until 2013 – as long as the Government continued to boost flood defences.
The agreement included a commitment to protect properties at "significant flood risk".
But a spokesman for the Association of British Insurers, said the so-called Statement of Principles "has only ever been a stop gap measure".
He added: "The Statement of Principles will not be renewed in 2013. We are clear on that. We are determined to work in partnership with the Government and all other interested bodies to see how best we can have a long term flood strategy in place."
The industry has complained that the deal distorts the market because it provides no incentive for new insurance firms – who are not covered by the agreement – to offer flooding protection.
A report published last month by the influential Commons environment select committee urged the Government to reach a new agreement with the industry.
Anne McIntosh MP, chairman of the committee, said the ABI was playing "hardball" with the Government.
Under the last government, spending on flood defences rose 33 per cent
in the four years to 2010/11. However, the coalition government cut flood-defence spending in the comprehensive spending review.
There are fears that a proposed 150m city defence scheme for Leeds could now be at risk.
Labour's shadow environment secretary and Wakefield MP Mary Creagh said spending cuts "could leave some householders unable to find mortgages".
Environment minister Richard Benyon said: "I am committed to ensuring that flood insurance remains widely available."