People in Lewes who insured their homes with failed Independent Insurance found their problems were just beginning when their policies were cancelled after the firm's crash.

For some, finding another company willing to insure their homes has been close to impossible as insurers refuse to take on customers at risk from flooding.

Many of the major insurers are refusing to accept applications from former Independent customers who made flood claims last autumn, according to some Sussex insurance brokers.

It is a foretaste of what homeowners and businesses can expect if the industry, as it says it might, refuses to guarantee cover against flooding beyond the end of next year.

The haunting prospect of homes becoming worthless overnight because they are uninsurable, and industry fleeing the town because of stinging premiums, could become reality.

Maureen Stringer, whose home in Spences Lane was under 7ft of water at the height of the floods, is among the Lewes householders who were insured by Independent.

She said the only company that offered to reinsure her had demanded a £25,000 excess for any future claim for flood damage.

She said: "Everyone is very pleased to be back in their homes but they are feeling very nervous that it could happen again. If it did, where would we stand?

"And what would happen when one comes to sell a property? Would anybody want to buy a property knowing they have not got flood cover?

"Everyone is trapped in their homes really, feeling very nervy."

Another former Independent customer, who asked not to be named, and whose home is in South Street, tried 20 companies before finding one that would re-insure him.

He said: "None would take it - it is too much of a risk I suppose. A couple of them just spelled it out: They want to see something done in Lewes."

Businesses had already begun to feel the heat before Independent went bust.

Joanne Millot, managing director of Parsons Joinery, based at the Riverside Industrial Estate, in North Street, has seen her monthly premium more than double since the floods.

Her insurance company added a £5,000 flood excess to her policy and capped its liability at £75,000 - less than three-quarters of the damage her business suffered in the floods.

It has made her determined to take her firm, which employs 11 people, out of Lewes.

She said: "If we had another flood, we would be out of business, because £75,000 would not even cover the machinery.

"It makes it impossible for us to do business in Lewes, so we will be moving. This year, we will have to keep our fingers crossed but we will be moving."

Insurance companies have also been accused of taking a "postcode approach", quoting higher premiums throughout Lewes, regardless of whether buildings are in an area at risk.

Paul Myles, who lives high above low-lying central Lewes, in Hill Road, has watched the cost of insuring his home go up by 20 per cent this year - more than double the typical increase elsewhere in the country.

He said: "I can see Crowborough from where we live. If I am flooded, so is half of Sussex. It is just ridiculous."

Insurance brokers say companies are still offering cover outside the area that was flooded but agreed the industry was likely to stop providing cover within it if nothing was done to try to stop a repeat of the disaster.

A 'gentleman's agreement' brokered between the Government and the industry last autumn, guarantees continued cover for homeowners and small businesses until October 2002.

What happens after that is guesswork. The Association of British Insurers denies it is an absolute deadline but cannot guarantee everybody will continue to get cover.

A spokeswoman said: "Insurers are saying you have got to have the flood defences in place. I think it is a question of knowing long-term risks are going to be minimised.

"Withdrawing cover is the very, very last option and it is not one the industry would want to choose."

Lewes MP Norman Baker says ministers must act quickly to extend the agreement and, if necessary, legislate to force insurance companies to continue offering cover.

Crucially, he says, plans for flood defences, expected to be unveiled in the autumn, should be brought forward quickly and properly funded.

He said: "What is quite clear is unless they take action now, flood affected areas of Lewes will become uninsurable.

"We need a flood defence plan and we need Government action to prevent insurance companies from pulling the rug from under homes and businesses."