State can demand audit of trade credit insurers under top-up

Government investigators will have the power to probe the accounts of trade credit insurers signed up to the state-backed top-up scheme, Insurance Times has learned.

Auditors will comb through accounts if there is a possibility the insurer has breached contract agreements. It could then lead to a damages claim, possibly through the courts.

The government’s far-reaching powers emerged during talks between Biba, trade credit insurers and brokers over the details of top-up scheme introduced in last month’s Budget.

Ministers had been working on a top-up scheme since Woolworths dramatically collapsed last November. The high street giant suffered a loss of confidence when suppliers had their trade credit insurance pulled.

A spokesman from the Department for Business, Enterprise and Regulatory Reform said: “The government will be able to look at how the trade credit insurers have been operating the trade credit insurance top-up scheme, and have rights typical of any reinsurance agreement. Normal contractual rights exist for material breaches of contract terms.”

Top-up insurance will plug the gap for companies that have had their cover scaled back between April and December 31. Contracts last for six month and can cover up to half of a company’s previously withdrawn insurance.

The scheme has come under fire for not helping companies which have had their insurance pulled completely. It also does not apply to exports.

Charlie Cooper, director at broker Cooper Darwin, who attended the meeting last Wednesday, said it would do little to help struggling firms.

Cooper said: “Most of my clients have had their cover pulled completely. That’s the same for the majority of trade credit brokers. One broker at the meeting said 92% of their clients had cover withdrawn completely.

“And it is expensive. The French scheme is 1% interest (of goods insured), the top-up costs 2.3%.”

A spokesman for Atradius said the government’s power to inspect was a “technical” aspect. She said top-up would help firms with reduced cover, although not that many clients would be eligible. Euler Hermes and Coface, the other two major credit insurers, were unavailable for comment.