The Government has agreed to an immediate review of its investment in Britain's crumbling flood defences amid threats by leading insurance providers to withdraw household cover in high-risk disaster zones, Times Online has learnt.

The review comes a year early and follows a high-profile campaign by the Assocation of British Insurers (ABI), the lobby group for the insurance industry.

It comes as ABI's members, including big home cover providers such as Lloyds TSB and Norwich Union, say that the current funding of flood defences is unsustainable, despite a £2.15 billion pledge by Alistair Darling yesterday in his Pre-Budget Report.

Unless fresh funds are found, premiums will rocket or insurers will simply refuse to take on certain flood risks, they say.

It emerged today that representatives of the ABI held informal talks about flood spending and insurance cover with Hillary Benn, the Environment Secretary, as recently as three weeks ago.

Talks were held at the Labour Party conference in Bournemouth.

Now the Government has agreed to revisit its crucial three-year rolling agreement with insurers that sets out detailed commitments on both sides.

Known as the Statement of Principles, this is effectively a promise by insurers to underwrite flood risks as long as the Government keeps its part of the bargain and modernises the defence network.

Reviewing the principles early underscores how worried insurers are about flood risks and suggests that the Government may be prepared to compromise.

Stephen Hadrill, the director general of the ABI, said: "We want to be able to continue to provide cover and we want to be able to do that on the basis of risk. All we are looking for is a sensible plan over a period of years.

"Insurers are saying that there is a very real risk that they won't be able to carry on unless we have a proper risk assessment and a proper funding of flood defences.

"If the Government provides an adequate level of flood defences, then the private sector will take up the risk. If we don't get that, then prices are going to go up and some people are going to get excluded."

He said that Kitty Usher, Economic Secretary to the Treasury, agreed to review the principles this year, rather than next, when they officially come due. Talks about the move also involved John Healey, the floods and recovery minister and Jonathan Shaw, regional minister for the south-east.

The ABI argues that the drainage systems in many flood-prone towns are inadequate, built to endure only one disaster every 30 years.

The ABI said that its members would prefer 75 years as best practice.

Yesterday the ABI rounded on the Government for having "completely failed to grasp the importance" of the issue.

The Government agreed to invest a total of £2.25 billlion between now and the end of 2011.

By the ABI's own estimate, its members will have to pay out more than £3 billion in claims related to the floods, pushing household premiums up nationwide.

Mr Hadrill said that it would be "irresponsible" to put a figure on the precise level of additional investment now needed.

"All we know is it's going to be more [than £2.25 billion]," he said.

Mr Darling, the Chancellor, told the BBC Radio 4 programme Today that the Government would keep its allocation to flood defences "under review".

He said: "The amount of money that has been allocated for flood defences is almost as much as the ABI actually asked for.

“We work closely with the insurance industry. We have have actually doubled the amount of money we have spent on flood defences over the last ten years."

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