The UK Government is in talks about implementing a trade credit reinsurance backstop scheme for the duration of the coronavirus (COVID-19) pandemic, according to reports from Sky News.
Insurers are reportedly discussing a new scheme with the Treasury and the Department for Business, Energy and Industrial Strategy that would prevent the widespread withdrawal of cover across sectors such as manufacturing and retail.
Sources said that a backstop could last through into the recovery phase of the pandemic, with the cost of the scheme likely to reach into the hundred of millions, or even billions, of pounds.
One also referred to a note which read: “Trade credit insurance is essential to provide the confidence and financial support needed for companies to supply existing and new partners.”
“The current economic situation is making it difficult for insurers to price their risk,” it added, warning of the potential impact of a reduction of credit limits.
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, according to sources at Reuters.
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.
At this point, the prospect of a backstop scheme in the UK remains uncertain, with the industry now awaiting feedback from the Association of British Insurers (ABI).
But one ABI spokesperson told Sky News that the availability of trade credit insurance “is likely to be severely reduced in the future” without state support.
“Many European governments are discussing with trade credit insurers how to support firms and maintain the supply chain and we have proposed a reinsurance scheme,” they explained.
“This would see insurers continuing to offer cover, with limited reduction in credit limits to customers, with the government acting as a reinsurer of last resort.”
