Government to intervene on trade credit insurance

by Gill Montia

Story link: Government to intervene on trade credit insurance

Government schemes announced earlier this week to ease lending to small and medium-sized businesses could be followed by intervention over credit insurance.

Trade credit insurance protects companies if customers fail to pay or enter administration and the recession has prompted a surge in claims.

Providers are becoming nervous but without trade credit insurance, the supply chains essential to business are under threat.

The Confederation of British Industry (CBI) has already written to the Prime Minister highlighting the dangers of cover being withdrawn and has called on the Government to become the credit insurer of last resort, as a temporary measure.

According to the CBI, a number of companies have had cover withdrawn despite the fact that their credit practices are sound and in some cases it appeared that credit insurers were withdrawing cover because of the risk that large customers may fail.

This week, Business Secretary Lord Mandelson has suggested that insurers are overreacting to the economic slowdown and has indicated that the Government will be taking action.

According to a report in The Financial Times, a government scheme to help companies struggling to obtain the insurance is under discussion with providers.

It could include a guarantee of up to 50% for qualifying businesses that have seen their cover reduced but not withdrawn entirely.

Further details are expected in days rather than weeks.