New figures from the Association of British Insurers (ABI) show nearly £36m was paid in insurance claims to small businesses last year, due to customer insolvency or late payment. With the Bank of England recently cutting its outlook for UK growth amid growing economic turbulence, trade credit insurance continues to provide cover and reduce the risk to small businesses if customers that owe them money do not pay their debts or pay them late.
Figures released by the ABI earlier this month show that trade credit insurance continues to represent good value for small businesses, who receive a quarter (25%) of the total value of claims paid, but pay just 15% of the total premium.
In 2015, small and medium-sized enterprises (SMEs) made almost 4,400 claims on their credit insurance policies, an increase of 25% on the previous year. This is above the market average of a 19% rise, reflecting how SMEs are particularly impacted during this period of economic uncertainty, and despite overall company insolvencies being near a record low.
ABI figures show:
- In 2015, almost £150m in total was paid in trade credit insurance claims last year across all businesses, an increase of 41% on the previous year.
- Small businesses made almost 4,400 claims, accounting for 40% of the total claims made to trade credit insurers.
- Insurers paid out almost £36m to small businesses, 25% of the total claims which were worth £149m.
- More than 7,000 trade credit insurance policies were taken out by UK SMEs in 2015, nearly 60% of policies sold.
Trade credit insurance can also support small businesses by helping improve their access to bank funding, often at more competitive rates, or facilitating expansion into new international markets by helping reduce the risk of exporting overseas.
ABI Manager for General Insurance, Mark Shepherd comments:
“Small businesses are central to the UK’s economy, innovating in the market and contributing to the country’s productivity. However, they can also be more vulnerable to financial setbacks, and customer insolvency or late payment can have a greater impact than it does for larger businesses. Trade credit insurers can play a vital role in helping small businesses through these challenging circumstances.”
“Trade credit insurance is crucial for all businesses to help them navigate potential risks. In particular, SMEs looking to grow can have confidence that a trade credit insurance policy will help them to do this whilst guarding against the unexpected.”
What is trade credit insurance?
Trade credit insurance provides cover for businesses if their customers that owe money for products and services do not pay their debts, or pay them later than the payment terms dictate. This insurance protects businesses against commercial risks that are beyond their control and helps them to grow by minimising the financial implications of sudden or unexpected customer insolvency. Trade credit insurance gives businesses the confidence to extend credit to new customers and improves access to bank funding, often at more competitive rates. Trade credit insurance is for products and services that are due within 12 months.
1. Small and medium sized businesses have a turnover of £5m or less