Industry body the Association of British Insurers (ABI) has voiced its support for the UK Government’s now confirmed scheme to provide a reinsurance backstop for trade credit insurers.
Economic Secretary to the Treasury, John Glen, announced today that the Government would move ahead with the scheme following several weeks of discussions with the industry.
By providing temporary guarantees for transactions currently supported by trade credit insurance, the idea is to prevent the widespread withdrawal of cover across sectors such as manufacturing and retail due to the COVID-19 pandemic.
The guarantee will be delivered through a temporary reinsurance agreement, and will cover trading by domestic firms and exporting firms. Agreements are expected to be in place by the end of the month.
The scheme will provisionally last until the end of the year, and will be followed by a review of the trade credit insurance market to ensure it can continue to support businesses in future.
The ABI believes the scheme could help speed up the economic recovery from the pandemic by enabling insurers to take on more risk than they otherwise would have been able to, and by allowing businesses to continue to access cover against the risk of supply chain insolvencies.
The Association worked closely with the Government to explain the difficult trading environment that businesses face going forward, and intends to continue to help develop the scheme.
“As we emerge from lockdown and restart the economy, we have worked with Government to outline the difficult trading environment that lies ahead, and this Government-backed scheme, once implemented, will help businesses and their supply chains get back on their feet,” said James Dalton, ABI’s Director of General Insurance Policy.
“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,” John Glen further stated. “By guaranteeing business-to-business transactions currently supported by Trade Credit Insurance, we will help to maintain a vital cog in our economy.”
Other European nations have already confirmed they will help to support trade credit coverage during the pandemic. Germany in particular has guaranteed up €30 billion (US $32.8 billion) for the commercial credit insurance industry.
In return, insurers will maintain their coverage and pay two-thirds of their premiums to the government this year. Credit insurers, along with the government, would also absorb the first €500 million in losses.
“This is a welcome step by the Government, which mirrors similar action being taken by other countries across the world, which are facing the same issues as the UK trade credit insurance market in these exceptional times,” Dalton continued.
“The scheme could help protect the supply chain, safeguard jobs and kick start the economy, boosting business confidence as we begin to emerge from the dark shadow of COVID-19. The priority now is to urgently work through with the Government how this scheme will operate in practice so that it can support businesses through the difficult trading environment, now and in the months ahead.”
Business Minister, Paul Scully, also commented: “Giving businesses the confidence to continue trading is vital to seeing us through this crisis. This guarantee will be essential as we seek to reopen new sectors of the economy and get the UK back to work in a way that is safe for everyone.”
