Credit insurers fight back

Francois David, the chairman of trade credit insurer Coface has called the Government's £5bn top-up insurance scheme a gesture that failed to address the underlying credit and trading problems facing the majority of businesses, the Telegraph reports.

80pc of businesses did not use credit insurance.

"The government is focused on the very small part of the problem. In our view it's not the right part," said Mr David. "We all play the game and market the top-up. [In France] it's led to very minimal amounts of take-up. But the government says it has done its job. We have stamped on the banks and we have stamped down on the credit insurers."

The UK government announced last week that only 13 companies had received top-up insurance during the first month of the scheme, which was launched in May.

Pierre Fournel, Coface's finance director, said that businesses were not prepared to pay for the additional cover being offered by governments. A typical premium might be 0.2% of the turnover insured, whereas the UK Government's top-up costs 4%.

No to ECGD expansion

David also questioned Lord Mandelson’s aim to expand the Export Credit Guarantee Department (ECGD)

David said that export credit agencies existed because the private sector could not reinsure the risk that long-term contracts, such as the supply of aircraft or the construction of dams, with sovereign states could turn sour.

Fabrice Desnos, chief executive of Euler Hermes UK, said he thought there were EU restrictions on the use of export agencies to write domestic trade credit insurance.

Prices will rise further

Ian Hollyholmes, Coface UK's credit insurance director, said that the price of credit insurance had rocketed and would continue to rise.

Premiums on insurance covering solid companies had risen by as much as 40%, "and significantly above that for other policies where the claims are high".

"The whole financial industry has underpriced risk. The pricing of risk was completely out of kilter. We are all to blame for that. Are we having to retrench very quickly? Yes we are. The claims that we face are completely disproportionate to the premiums on the policies," he said.

Up-to-date information vital

In a separate story the the Telegraph says the three leading insurers, Euler Hermes, Atradius and Coface, are all seeking more current data on companies they cover, in some cases even weekly sales forecasts.

Shaun Purrington, UK director at Atradius, said: "We have had to change. We have learnt a lot over the last six months. Historical information is still important but they are not the be all and end all. In many instances the financials that you see at Companies House are not really worth the paper they are written on."

Purrington said insurers had multiple sources of information about how private companies were performing, including "tip-offs" from their own customers and contacts across different industries. "But it's not enough. What we need is really up-to-date information on which to base our decisions," he said.

Ian Hollyholmes, Coface's credit insurance director, agreed: "What this current episode [the recession] has highlighted is that there is a need for the buyer to provide more transparency."

The credit information business Graydon UK, which is owned by the three largest credit insurers, has signed a deal with a software company called Validis to develop a system that uploads monthly management accounts in a standardised form, weeds out inconsistencies, and then supplies the data to banks and insurers.

Hollyholmes said: "This could be a breakthrough moment for the industry, provided the companies are prepared to release the information."