No trade credit? Let’s try captives, say pressured firms

Businesses struggling to secure trade credit are turning to captives.

Aon Risk Consulting technical director Ken Read said it had received a “steady stream” of enquiries from firms wanting either to set up a captive or include trade credit insurance in an already formed captive.

As the number of claims has soared in the past 12 months, trade credit insurers have either scaled back cover or withdrawn it completely from suppliers.

Figures released by the ABI earlier this month reveal 9,213 claims for the first quarter of this year, an increase of almost 50% for the same period last year.

Companies wanting to set up a captive – a self-insured funding scheme usually based in a tax-friendly country – would typically have had a premium spend of about £1m, Read said.

“Traditionally, captives are a risk tool when clients are dissatisfied with the product market, so it is not surprising, with the markets the way they are, that they have moved towards them. They are looking for alternative risk,” he said.

Meanwhile, a survey from the Construction Products Association (CPA) shows that companies are turning their back on the government’s trade credit top-up scheme – despite reassurances from Lord Mandelson, the Business Secretary, who wrote exclusively for Insurance Times on 23 July.

Only one supplier of construction products out of 100 interviewed had taken up the scheme in the past three months, describing it as “very expensive with limited cover”.

CPA’s chief executive, Michael Ankers, said the survey made it clear that the scope and cost of the scheme made it unattractive to almost all companies in the construction products industry.

“We will be discussing with government ways in which the scheme might be further modified to address the concerns that have been raised, but unless the government is prepared to extend the scheme beyond the end of the year, any changes are unlikely to have any really beneficial impact.”

The Business Innovation and Skills department declined to comment.