ABI: Credit insurance claims up 59%

by David Masters

Story link: ABI: Credit insurance claims up 59%

The Association of British Insurers (ABI) has reported a 59% increase in trade credit insurance claims during the third quarter.

Trade credit insurance protects businesses when customers fail to pay or enter administration.

Claims against trade insurance policies hit £97 million from 6,805 claims in the third quarter of this year. This is compared to £61.4 million from 5,084 claims in the same period last year.

In 2007 the number of companies taking out credit insurance rose by 10% – the third consecutive year of market growth in the sector.

The ABI believes the rising number of credit claims is a sign of companies struggling to remain viable as the credit crunch sweeps across the UK economy.

Nick Starling, ABI director of general insurance and health, said the level of trade credit insurance claims is a good indicator of how well the UK economy is functioning.

He added that economic slowdown has pushed the number of policies taken out by companies to ‘record highs’.

Nick Hedley, financial risk division chairman at Jardine Lloyd Thompson, believes insurance companies have been too willing to offer credit insurance.

Hedley said insurance companies have become ‘undisciplined’ and ‘inappropriate’ in the cover they offer.

Hedley’s warning is stark. If companies continue to default on credit payments, the downward spiral of the credit crunch could spin much lower yet.