Trade credit insurance is an important protection for many businesses.
It provides insurance cover if customers who owe money for products or services do not pay their debt or pay them outside agreed terms. It has been reported that UK insurers paid out £315 million to help firms cope with bad debt in 2019.
But the trade credit insurance market has been hit hard by the Covid 19 pandemic.
In our blog post on 12 March 2020 on Covid 19 related insurance issues, we suggested that people may wish to carefully review the terms and conditions of their trade credit insurance policies. And since then, some credit insurers have pulled lines of credit for insurance on individual customers (especially in the retail sector) or have refused new insurance cover all together.
The potential impact on the future of UK PLC is clear for all to see.
So it now seems that the Association of British Insurers (“ABI”) is in talks with the Government to offer protection for trade credit insurers to keep the market alive and protect the businesses from default risk in the wake of Covid 19. The ABI has confirmed:
“We are discussing with the Government the scope for temporary state support to ensure that businesses can continue to obtain cover that meets their needs.”
One idea under discussion could see the Government providing a backstop through a reinsurance scheme. That would see insurers continue to offer cover, with limited reduction in credit limits to customers, with the Government acting as the reinsurer “of last resort”. The ABI has added that asking the Government to provide reinsurance is a way to make sure that trade insurance policies remain available in a time of crisis.
Discussion between the insurance industry and the Government is against the background of several European states including France, Germany and the Netherlands already providing guarantees to keep business afloat amidst the ongoing lockdown. Earlier this month, European Union regulators approved a €10billion French programme of guarantee to the domestic credit insurance market to help businesses cope with Covid 19.
Discussion between the insurance market and the UK Government continues and therefore this is very much a case of “watch this space” for further developments.