The ABI has raised concerns about the potential further cuts in government spending on flood defences.
Insurance Times can reveal that the Department for Environment, Food and Rural Affairs (Defra) is likely to face further pressure on its budget in 2007, despite government assurances that it will continue sustained investment in flood defence spending.
The Environment Agency (EA) has faced spending cuts totalling £28m in 2006, £15m of which was severed from the flood defence maintenance budget.
The move sparked outrage among insurers who warned that homes built on flood plains could soon be uninsurable because of a lack of adequate protection.
This week Defra's permanent secretary, Helen Ghosh, told a government select committee that there could be further cuts. "The Department's budget overall will continue to be squeezed," said Ghosh.
It is understood Defra is holding intense talks with the EA and the ABI to discuss the extent to which the budget can be "squeezed".
Ghosh said: "The judgment that the EA has made is that reductions in that area of spend for one year may be able to be coped with. But I can assure you that they are making very strong representations about the level of funding for the future."
Jane Milne, head of property for the ABI, said: "It is worrying that Defra's permanent secretary told the select committee that more cuts were coming."
Alan Gairns, property development manager for Royal & SunAlliance, said further squeezing of the EA budget would be damaging.
He said: "We are meeting with MPs to try and express to them that this is becoming a worsening situation. By 2011 we will need [an annual] £755m to combat flooding. At the moment we have £564m which was frozen at that level in 2004, keeping it at that level would certainly concern us."
The EA was meant to receive details of its funding for coming years by October, however that date has now been moved to the end of December.
Ghosh said this was to allow Defra to supply the agency with precise figures to budget within.
A Defra spokesman refused to confirm comments made by Ghosh. She said: "We are currently reviewing Defra's budget for next year and will be making an announcement shortly."
