The Association of British Insurers (ABI) wrote to the Government to agree a one-month extension to talks to ensure flood insurance is both available and affordable for at-risk homes and businesses.
Mr Paterson said negotiations over new flood insurance terms are "very close" to concluding. The current deal was due to expire in June but has been extended by a month.
Mr Paterson said "the tone of the letter" indicated that a deal was close but said there were still important issues to be resolved.
Labour has warned that 200,000 homeowners will face difficulties either getting insurance or paying higher premiums once the current deal ends.
During Defra questions in the Commons, he said: "We are at an advanced stage in negotiations with the insurers towards a successor to the statement of principles. Today the ABI has written to say insurers will continue to abide by the current agreement for a month beyond the end of June to allow further time for the outstanding issues to be concluded. We are aiming to conclude negotiations as soon as possible to ensure that households can continue to access affordable insurance."
Mr Paterson said the Government could use the Water Bill, to be brought forward late this summer, to add clauses related to flood insurance. "This is a very complex issue, what we are trying to do is to get a long-term solution and sort out the conundrum of affordability, comprehensiveness and not being a long-term burden on the taxpayer," he said.
The ABI said negotiations were "advanced" and that they will end "as soon as practicable". Otto Thoresen, director-general of the ABI, said in a statement: "The Government and the ABI continue in constructive discussions on the future of flood insurance, specifically on how the components of the ABI's Flood Re proposal can be designed to best meet the objectives of the Government, the insurance industry and, most importantly, the needs of those at risk of flooding.
"There are still important issues to resolve and no deal has been reached, but negotiations are advanced and we will bring negotiations to a conclusion as soon as practicable. After the statement of principles expires on 30th June, ABI members have agreed that they will continue to meet their commitments voluntarily for one additional month until July 31st, to ensure that their customers across the UK can continue to access insurance while discussions are concluded."