Tens of thousands of people who live in flood-affected areas will be able to buy cover for their homes after ministers struck a new agreement with the insurance industry.
Currently, insurance providers and the government have an agreement which guarantees affordable insurance as long as flood defences are maintained by the state.
However, this flood insurance agreement between insurers and government was originally due to end on 30 June, before being extended to the end of July, due to problems in negotiating a new deal.
Flood insurance agreement reached
But environment minister Richard Benyon has announced that the government had accepted proposals from the Association of British Insurers (ABI) to establish a new insurance scheme.
Known as "Flood Re", the arrangement will be effectively funded by a levy on all home insurance policyholders.
This would help subsidise the premiums for those most at risk of flooding, while the government would guarantee the costs of claims that could arise from especially heavy damage.
It also means that high-risk customers should not have to pay large excesses on their claims.
Without a new deal, thousands of homeowners faced the prospect of being unable to buy insurance against flood damage.
This would have left homeowners face the financial consequences of extreme weather on their own.
Also, this would have made it almost impossible for homeowners to sell their properties or to obtain additional mortgage finance.
James Rakow, insurance partner at advisory firm Deloitte, said: "This initial agreement can't come a moment too soon for the 200,000 households in Britain whose homes are at very high risk of flooding.
Affordable cover 'a priority'
"If an agreement had not been reached, insurance for the homes of hundreds of thousands of people would become difficult to find or afford," Rakow added.
ABI director general Otto Thoresen added: "Insurers' priority has always been to ensure that flood insurance remains affordable and available for everyone who needs it.
"This announcement is the start of a process that aims to deliver affordable flood insurance to high flood risk households."
But Thoresen warned there were still some aspects of the new agreement that needed to be finalised.
"Getting to this stage has required compromise by both sides and there remain issues that need to be overcome," he said.
"For Flood Re to be established successfully there needs to be an unprecedented level of partnership between the government and the industry."
The new system is not expected to come into effect until 2015.
Until then, the ABI's members will continue to offer flood insurance to their customers on the same basis as at present, the organisation said.
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