The trade body representing British insurers is asking the government to provide temporary guarantees for trade credit insurance to cover bad debts during the COVID-19 crisis.
The Association of British Insurers (ABI) said a sharp rise in insolvencies as a result of COVID-19 was hampering its members’ ability to cover businesses exposed to defaulting customers. Insurers are finding it difficult to price their risk in the current economic uncertainty.
A new reinsurance scheme, underwritten by the government, would keep open the availability of trade credit insurance, which without help "is likely to be severely reduced in the future," an ABI spokesperson told Sky News.
The proposal from the ABI to ministers in the Treasury and the Department for Business, Energy and Industrial Strategy emphasises the impact of reduced cover for firms involved in crucial supply chains, including those in food and drink.
Trade credit insurance, provided by players such as Euler Hermes and Atradius, protects companies against the risk of default by their customers.
One trade finance specialist told the Daily Update that “bolder’ government support for bank lending during the COVID-19 crisis was “crucial”.
Deepesh Patel, director of partnerships and marketing at Trade Finance Global, said:
“A last resort ‘backstop’ by the UK government would be welcomed by private insurers, and should support economic activity through trade in goods and services.
“There has always been a level of complementarity between public and private sector risk transfer mechanisms, and a bolder UK scheme seems appropriate given the current economic pressures.”
Sky reports that governments including France, Germany and Italy have already unveiled similar schemes to ensure businesses can access cover.
