Trade Credit Insurance
On 4 June, the Government announced the establishment of a temporary government backed £10bn trade credit reinsurance scheme. Since alerting the Government in early April to the challenges faced by the industry and businesses they support across the country, the ABI has worked with members to evidence the scale of the challenge and the importance of establishing a reinsurance scheme to ensure that the industry has the confidence to continue providing the cover needed by many sectors across the economy.
In response to the announcement the ABI issued a press statement welcoming the scheme.
What is trade credit insurance?
Trade credit insurance provides cover for businesses if customers who owe money for products or services do not pay their debts, or pay them later than the payment terms dictate. This could result from businesses not being able to pay for goods and services delivered as the result of Coronavirus. For further information, read our guide here.
Is there any business cover against suppliers going insolvent?
Trade credit insurers do not provide cover for loss of production volume or the insolvency of a supplier, only the failure of a customer to pay for purchased goods. It is primarily insurance to cover the potential failure of a customer to pay for goods and services rendered in the event of insolvency or in the event of late payment.
Is my business covered by insurance against delays in payments across the supply chain?
Trade credit insurance provides coverage for delayed payments, ensuring that late payments do not put your company under financial strain.
What if I am trading with a region affected by Coronavirus?
Insurers will assess trade on a case by case basis for those countries/regions that are experiencing the most severe impact of the virus. Insurers may set specific conditions or credit levels for such trade.
What is the temporary state-backed support scheme announced by the Government?
Because of the unprecedented financial pressures being faced across most business sectors, the government has acted on our proposal to ensure that businesses can obtain trade credit insurance as they recover from the impacts of Covid-19.
Under this temporary scheme, the Government will share the risk of losses arising from business insolvency with insurers. Insurers will take 10% of claims that result from business failure while government will take 90% of the premium and claims. This will help trade credit insurers to continue to provide insurance for a wide range of businesses across the country by maintaining levels of cover than they otherwise would not have been able to do.
UK businesses covered by trade credit insurance will be included automatically in the scheme if their insurer participates in it.
How will I know if an insurer is part of the scheme?
While most trade credit insurers are participating in the government support scheme, a few insurers have decided not to partake in the scheme. A full list of participating insurers can be found on the BEIS website; https://www.gov.uk/government/publications/trade-credit-reinsurance-scheme
Why might an insurer not be participating in it?
Participating in the scheme is optional for insurers. Some insurers have made the decision not to participate for a variety of commercial reasons. These insurers may feel that that they can better serve their customers base through normal business and underwriting practices and cover may still be available for from non-participating insurers.
As the scheme is a temporary measure, what happens when it ends?
Built into the scheme agreement is the need to review its operation and to decide if an extension to the scheme is needed or how support might be tapered to ensure businesses can continue to access cover. This review will take place in the Autumn, with BEIS working in conjunction with the insurance industry to determine what the next steps should be, and if support will continue past the current end date of 31 December 2020.