Trade credit insurers could get state help as Covid-19 bites

The ABI is in talks with the government to offer protection for trade credit insurers as businesses come under strain due to the coronavirus pandemic.

One proposal could see the state stepping in to provide a backstop to credit insurers in the form of a reinsurance scheme which “would see insurers continuing to offer cover, with limited reduction in credit limits to customers, with the government acting as a reinsurer of last resort”, Reuters reported the ABI as saying.

“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,” it added.

UK business secretary Alok Sharma held talks with industry stakeholders last week, including the ABI and insurers, it was reported.

Several European Union states including France, Germany and the Netherlands are already providing guarantees to keep their businesses afloat amid lockdown measures.

Trade credit insurance has been around for just over 100 years.

It was introduced in 1919 with the main purpose of supporting businesses to export and resume trade relations in the aftermath of the First World War.

Today, trade credit insurance continues to protect businesses and facilitates millions of pounds of trade every day.

Existing trade credit products generally cover disruption from known commercial and political risks, and some trade credits insurers have reportedly been refusing new cover in the wake of Covid-19.

Commenting, GlobalData’s Ben Carey-Evans said the reinsurance scheme ”aims to prevent the widespread withdrawal of cover across sections such as manufacturing and retail.

”The bill is expected to run into the hundreds of millions at least and will be extremely beneficial to the insurance industry and small businesses. Since COVID-19 was declared a pandemic, many insurers have withdrawn products in particularly risky lines.

“Trade credit insurance covers businesses against their customers defaulting on payments. This is especially important at the moment due to the number of businesses currently closed, but it is also very risky for insurers.

”The deal will allow insurers to continue offering trade credit to customers, safe in the knowledge they will have the government behind them as reinsurers.

“GlobalData’s Solvency II Performance Analytics shows that Allianz is by far the leading credit and suretyship insurer in the UK, followed by Tokio Marine and Zurich.

”This is a key line for Allianz, so being able to continue the offering, maintain its client relationships and help its customers pay their bills will be a significant boost to the insurer.”