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Trade Credit Insurance

In June last year, the Government announced the establishment of a temporary government backed £10bn trade credit reinsurance scheme. This has helped ensure that businesses have been able to continue to access trade credit insurance during the pandemic. The scheme was only intended to be a temporary measure, and the Government recently announced that, as planned, the Scheme will end on 30 June. 

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 Covid-19?

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, during the pandemic, which threatened the continued availability of trade credit insurance, the government acted on our proposal to ensure that businesses can obtain trade credit insurance as they recover from the impacts of Covid-19. The UK Trade Credit Support Scheme has provided vital assistance in stabilising the market and enabling insurers to continue offering cover where they would otherwise not have been able to. The Government has confirmed that the temporary scheme will end on 30 June. 

Under the temporary scheme, the Government shared the risk of losses arising from business insolvency with insurers. Insurers take 10% of the premium and claims that result from business failure while government will take 90% of the premium and claims. This helped trade credit insurers to continue to provide insurance for a wide range of businesses across the country.

Why is the scheme ending?

The scheme was always a temporary measure, and will end on 30 June. It has allowed the industry to adjust to the changed economic circumstances of the time, while maintaining the levels of market cover in place that existed before the Covid-19 pandemic. As the pandemic risk recedes, the scheme is now no longer needed to provide stability and access to insurance.

In the absence of the Scheme, will trade credit insurance be widely available?

The UK Trade Credit Support Scheme has provided vital assistance in stabilising the market and enabling insurers to continue offering cover where they would otherwise not have been able to. During the operation of the Scheme, insurers have gained greater insights into the effects of the pandemic on business and are much better equipped to make informed decisions on buyers. Most businesses will continue to be able to access Trade Credit Insurance as normal. Some businesses may experience changes to the level of cover available. This is most likely to affect companies which have been badly affected by the pandemic, or faced significant operating challenges prior to the pandemic.

What help can trade credit insurers offer to businesses as they try to recover from the pandemic?

Trade Credit insurers are committed to supporting UK businesses, with ABI Trade Credit members by:

  • Continuing to work closely with policyholders and their clients to source up to date information on their risk profile, including any benefits offered by Government support packages where available.
  • Actively keeping credit limits and products under review, giving careful consideration to business plans for recovery and the potential for future growth.
  • Engaging constructively with policyholders and brokers on their cover and credit limits, giving due consideration to the risk presented and the financial health and resilience of the business and its supply chain.

What information can buyer companies provide insurers with to help them assess risk and provide cover with confidence?

Information and data are essential for insurers, giving them confidence in assessing risk and setting credit limits for businesses of all sectors of the economy. Never has the need for up to date information been more pertinent than now as the economy begins to recover after the effects of Covid-19. Helping insurers understand your business with up to date information can be important in getting the credit limits your business needs. Some financial information that will assist insurers in understanding your business and the risks associated include:

  • Current Strategy and Plans
  • Financial statements
  • Management information
  • Liquidity metrics
  • Cash flow balance
  • Cash flow projections
  • Funding availability and options
  • Any other extra financial information

It is important that you engage early with insurers in the run up to the ending of the UK Trade Credit Support Scheme to discuss the trade credit cover your business needs.