Construction sector faces surge in insolvencies.

Underwriters are set to refuse credit insurance to the construction sector, Aon Trade Credit has warned.

The broker said this week that the predicted surge in insolvencies could lead to soaring premiums – or even the withdrawal of cover for bad debt following the insolvency of a customer.

David Thomas, director for Aon Trade Credit, said: “Insurers are doing their best not to flee from risk in the way that they have in previous recessions.

“However, with their loss ratios running in excess of 130% on recent years, we are predicting a severe increase in premium rates and an inability to negotiate long-term trade credit insurance arrangements.”

He added: “As a result, this is a very busy point in the UK construction insurance cycle, and underwriters with commitment to construction are now at a premium.”

Aon attributed the rise in construction insolvencies to pressure on subcontractors to accept discounted contract values; the rising cost of raw materials and falling demand for residential and commercial building.

Statistics released by the National House Building Council last month show that from April to June this year there were 20,973 applications to start new homes, a 51% reduction on the same quarter last year.