A UK government scheme to provide a reinsurance backstop for trade credit insurers during the pandemic is expected to be finalised “within days,” according to reports from Sky News.
Ministers began discussing a possible new scheme with insurers last month to prevent the widespread withdrawal of cover across sectors such as manufacturing and retail.
Now, Sky News sources say that an agreement could be reached by the middle of the week, although details will take longer to work out.
Business Secretary Alok Sharma has reportedly held numerous talks with insurers over the last month, with participation from regulators the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA).
It is thought that government support would add billions of pounds to the cost of the various emergency support packages announced since March.
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.
The Association of British Insurers (ABI), which was also consulted by the government, said in an earlier statement: “Insurers work closely with their customers, discussing with them where credit limits can be adjusted to help avoid bad debts, but this cannot happen where there is likely to be a sharp rise in insolvencies across many business sectors, such as from COVID-19.”
The Association believes that the availability of trade credit insurance could be “severely reduced” in future as a result of the crisis.
“We want to avoid this,” it noted, “so we are discussing with the Government the scope for temporary state support to ensure that businesses can continue to obtain cover that meets their needs.”
Analysts at data and analytics firm GlobalData expect the cost of the UK backstop scheme to run into the hundreds of millions of pounds at least, and said that the arrangement would be “extremely beneficial” to the insurance industry and small businesses.