News

Government support for credit insurance

Recent press items have been looking for positive news with regard to the UK economy, consumer confidence is less negative than it has been since before Northern Rock went bust, stock markets are rising there are suggestions that the mortgage market may be coming back to life (Abbey announced that it expected the UK mortgage market to return to overall net lending this year).

However, it is hard to understand what the foundations are for this positive news, other than – in the words of Sir Stuart Rose – “People are fed up with being fed up”. The latest insolvency figures, for Q1 2009, released on Friday show another dramatic increase in the level of corporate insolvencies and confirm the fears of many economists that corporate insolvencies could reach 39,000 this year – nearly 1 out of every 50 companies going bust in a single year.

Credit insurers are facing great difficulties in understanding the risks in the current recession. Insurers are being criticised for reducing or removing cover from a number of UK companies – yet they are still paying out claims at record levels against the limits that they have written. In Q3 2008, claims received by UK credit insurers were just under £100m (against premium income of around £75m - £85m). Claims numbers for at least one insurer in Q4 2008 were up by 100% against Q4 2007.

The UK Government has now recognised the important role that trade credit insurance plays in supporting trade for UK companies and has announced measures in the budget to support the credit insurance market. In essence, where a company has a credit insurance policy and a credit limit is reduced by the insurer, the insured company can purchase “top-up” cover from the government scheme. Top-up cover premiums are 2.3% of the sum insured and run for 6 months form the date purchased.

The scheme has already attracted some criticism – Simon Dowdle, MD of Sony UK says that it is too little, too late as it is not back dated far enough, it only applies to credit limit reductions, not removal of cover and it only runs for 8 months.

If you have a credit insurance policy and are interested in more details of the top up scheme, please ring LDPA Credit Insurance for more details.