Trade Credit Special: Help is at hand

The pressure on trade credit insurance (TCI) companies during a recession is often overlooked, with many facing a significant increase in the number of claims from their clients for non-payment on goods and services.

It is understandable that, given the strain on their own capital position, a number of insurance firms have retrenched and increased the pricing of cover in an attempt to improve their own bottom line. But insurers are a lifeline for many businesses – businesses that have paid premiums to protect themselves in difficult economic times – and such short-term actions can undermine the trust they have built with their customers. So, insurers need to prove they are committed to helping the companies they insure. I think that’s very important.

Over the past 12 months, as the financial crisis has unfolded, we’ve seen a rapid contraction in the availability of TCI to businesses. In response, the government launched a trade credit insurance top-up scheme in May.

This scheme provides targeted, temporary support for cases where insurers reduce but don’t completely remove cover. It helps bring stability to the insurance market without competing with existing insurance products, striking a fair balance by supporting businesses, but not taking excessive risks with taxpayers’ money.

In June, we extended eligibility for the scheme to include those suppliers that have had their cover reduced since October 2008, offering them the opportunity to purchase sixth months’ worth of top-up cover. This means that more companies will be eligible, including some of those that have had a complete withdrawal and then a partial reinstatement of cover.

To date, Euler Hermes, Atradius, Coface and HCC have agreed to offer the scheme to their eligible clients. And it’s important that all insurance brokers are aware of the changes and encourage eligible businesses to apply.

We will now assess the impact of the scheme and work with insurance providers to ensure it continues to meet the needs of businesses, while providing the taxpayer with value for money. We would welcome the help of brokers in assessing the scheme’s effectiveness. They are the experts, and have the closest link to the policyholders and the market.

The ABI has launched a ‘statement of principles’ on TCI, which lays down a series of guidelines on such subjects as ensuring appeals and disputes are resolved quickly, and working more closely with the banks. I would strongly advise all insurance firms to follow the rules it sets out.

The ABI has also published advice to businesses to provide guidance to buyers covered by TCI polices on the types of information they will use to assess risk. These are positive steps towards strengthening relationships between insurers and the businesses they protect.

I fully understand that insurers, like any other business, need to turn a profit in order to survive the recession. So I would encourage them to visit the Business Link portal – businesslink.gov.uk – the avenue to all government support packages. There they can take advantage of a free ‘health check’- a kind of MOT for businesses.

To date, over 64,000 companies have taken advantage of the health check, but only 887 of these are operating in the financial intermediation sector. This clearly shows that many financial firms are not making use of the support we’ve put in place to help them. After all, government help can only work if businesses are actually using it. IT

Rt Hon Lord Mandelson, Secretary of State for Business, Department for Business, Innovation and Skills