Which insurers will sign up to the Government’s formalised backing?
In June we updated you about the proposals for the formal backing by the UK Government of trade credit insurers. The Government has announced that terms have now been agreed with insurers, and the European Commission gave its approval to the scheme on 29 July. But it is becoming clear that not all insurers favour the terms and will not enter into an arrangement with the Government.
But what does this mean for businesses?
The ‘Trade Credit Reinsurance’ scheme is a form of guarantee to insurers, so that they have the confidence to maintain and write credit insurance for businesses, for both domestic and export trade. While it’s a £10bn guarantee, it does mean that insurers who sign up will have to hand 90% of premiums to the Government, alongside of raft of other terms to manage their own exposure to risk.
The backing is intended to help UK companies to continue to trade on credit terms, and provide a welcome boost to the economy at this time of not only a health crisis but potentially an economic crisis. Of course it’s great that the UK Government recognises the importance of credit insurance but the terms of the support may not appeal to all insurers.
A spokesperson for the Association of British Insurers said a number of major providers have confirmed their participation in the scheme, which is on track to “ensure that widespread availability of cover can continue.” However this is not true of all insurers. We have heard from one insurer, for example, that believes that they are better to continue to underwrite trade credit insurance based on their own risk assessment, and didn’t feel it was appropriate to accept Government support for their mainstream business.
While the scheme is available until 31 December 2020, backdated to 1 April 2020, the closing date for insurers was 31 July 2020. We will keep you updated.