Government announces support for businesses with supply chains relying on trade credit insurance
Businesses with supply chains which rely on trade credit insurance (TCI) and which are experiencing difficulties maintaining cover due to Covid-19 will get support from the government, the government has announced.
TCI provides cover to hundreds of thousands of business-to-business transactions, particularly in non-service sectors such as manufacturing and construction. It insures suppliers selling goods against the company they are selling to defaulting on payment. This gives businesses the confidence to trade with one another.
But due to Covid-19, businesses are struggling to pay bills and risk having credit insurance withdrawn, or premiums increased to unaffordable levels.
To prevent this from happening, the government says it will temporarily guarantee business-to-business transactions currently supported by TCI, ensuring the majority of insurance coverage will be maintained across the market. This will support supply chains and help businesses to trade with confidence as they can trust that they will be protected if a customer defaults on payment.
John Glen, the Economic Secretary to the Treasury said: ‘This country’s businesses are crucial in helping us to kick start the economy as we get back to work, and I will do everything I can to help support them through this difficult time. By guaranteeing business-to-business transactions currently supported by Trade Credit Insurance, we will help to maintain a vital cog in our economy.’
The guarantee will be delivered through a temporary reinsurance agreement with insurers currently operating in the market. The government will work with businesses and the industry on the full details of the scheme to ensure firms are supported and risk is appropriately shared between the government and insurers.
The guarantees will cover trading by domestic firms and exporting firms and the intent is for agreements to be in place with insurers by end of this month. The guarantee will be temporary and targeted to cover Covid-19 economic challenges, provisionally lasting until the end of the year.
This will be followed by a review of the TCI market to ensure it can continue to support businesses in future. Further details will be announced in due course.
In 2018, £450m was paid in TCI premiums to cover over £350bn in business activity. As of April 2020 there was over £171bn of business activity insured, covering transactions between around 13,000 suppliers and 650,000 buyers.