Government extends trade credit insurance top-up period

On 9 June 2009, the Government announced that its trade credit insurance top-up scheme would be backdated to 1 October 2008, allowing businesses whose cover has been reduced since 1 October 2008 to be eligible to apply for the top-up cover. Previously, only businesses whose cover has been reduced since 1 April 2009 could apply.  This change follows the Department for Business, Innovation and Skills announcement that only 13 top-up applications had been received in May, worth £718,000.

Credit insurance, protection against non-payment of sums owed due to insolvency or default of a customer, is used to offset the insured’s risk that a customer will fail to meet its current and future payment obligations. In the last quarter of 2008 a number of insurance providers refused to extend credit insurance on renewal dates or reduced the level of cover available under an existing policy. This contributed indirectly to the downfall of many retailers, such as Woolworths. In response to these events the Government announced in the 2009 Budget that until 31 December 2009, and subject to certain conditions, suppliers would be able to purchase upto six months' top-up trade credit insurance if credit limits on their credit insurance for their UK customers have been cancelled and reinstated at reduced levels since 1 April 2009. Specifically, the scheme permits suppliers by purchasing the top-up insurance to either restore cover to the original level or double the amount they are able to obtain from the private sector up to the value of £1m, whichever is the lower. The scheme does not apply to those suppliers who have had their credit insurance cover totally withdrawn. The period over which this scheme applies has, following the announcement, now been extended back to 1 October 2008.

Retailers have welcomed the extension, but stated that "more changes still need to be made" as the extension fell short of the 1 April 2008 start date the retail trade body has been campaigning for.

Jane Milne, BRC Business Environment Director, stated "The Government's decision to extend the eligibility of the trade credit insurance top-up scheme is a welcome move. But it should be back dated to last April, when insurers began removing cover as the downturn started to bite."

"Matching the trade credit insurance that private insurers are willing to provide is vital to helping fundamentally sound businesses weather the recession. For retailers to survive and keep people in work they need to keep shelves stocked with the goods customers want."

Shaun Purrington, regional director of Atradius UK and Ireland, one of the three leading insurers, was reported in the Telegraph this week as saying: "The original scheme generated considerable interest within the business community, however the take-up has been lower than expected and we hope the revised scheme will encourage businesses, both large and small, to take advantage of the extended terms."

It will be interesting to note whether this new scheme has an impact on the retail industry going forward.

The Government further revealed that credit insurance firm HCC will now join Euler Hermes, Atradius and Coface as providers of the Government’s top-up scheme.