In the United Kingdom, an agreement between the government and the country’s insurance industry is scheduled to come to an end in 2013. The agreement was first struck in 2008, after severe flooding caused damage to homes a year earlier. The agreement saw insurers offering coverage to homes found in high-risk areas, where flooding is very common during rainstorms. The Association of British Insurers wants the government to shoulder some of the burden associated with covering these risk-prone properties, but if the government denies re-negotiating the deal, thousands of homeowners may lose their insurance coverage.
The original deal had insurers offer coverage to high-risk properties while the government took steps to fortify these properties from future disasters. Despite these efforts, consumers have begun complaining of high premiums as insurers attempt to offset the potential for major losses due to storms. The Association of British Insurers claims that the agreement is not sustainable, and wants to form a new risk-sharing model that would establish a subsidiary for insurers and alleviate some of the financial stress on consumers.
Thus far, the British government has been open to negotiations, but the idea of setting up a new subsidy for insurers has run afoul of some officials who claim that the government cannot afford to invest in such a program. Officials claim that any changes to the agreement would have an impact on new insurance policies in 2012 as well as some regulations. Essentially, the government has one year to negotiate a new deal with insurers in order to avoid thousands losing their insurance coverage.