The initiative aims to help businesses recover from the economic shocks of the Covid-19 pandemic
The government has confirmed that it will work with the insurance industry to deliver a temporary reinsurance scheme to protect businesses under threat of losing their trade credit insurance because of the detrimental economic impacts of the Covid-19 pandemic.
The scheme centres on trade credit insurance, which covers business-to-business transactions, typically in non-service sectors such as manufacturing and construction – it insures against companies defaulting on payments.
However, due to the coronavirus outbreak and the associated lockdown, the government has recognised that businesses struggling to pay bills may have their trade credit insurance withdrawn, or premiums could increase to unaffordable levels.
To combat this potential scenario, the government plans to temporarily guarantee business-to-business transactions that are currently supported by trade credit insurance.
It said this will support supply chains and help businesses to trade confidently, as they can trust that they will be protected if a customer defaults on payment or a supply chain vendor enters insolvency.
The guarantees, targeted specifically for the economic challenges associated with Covid-19, will cover trading by domestic firms and exporting firms; the intention is for agreements to be in place with insurers by end of this month.
The temporary arrangement will provisionally last until the end of the year. This will be followed by a review of the trade credit insurance market to ensure it can continue to support businesses moving forward.
The economic secretary to the Treasury John Glen said: “This country’s businesses are crucial in helping us to kick-start the economy as we get back to work, and I will do everything I can to help support them through this difficult time.
“By guaranteeing business-to-business transactions currently supported by trade credit insurance, we will help to maintain a vital cog in our economy.”
Business minister Paul Scully added: “Giving businesses the confidence to continue trading is vital to seeing us through this crisis. This guarantee will be essential as we seek to reopen new sectors of the economy and get the UK back to work in a way that is safe for everyone.”
James Dalton, director general of general insurance policy at the ABI, described the government’s announcement as a “welcome step”.
He said: “As we emerge from lockdown and restart the economy, we have worked with government to outline the difficult trading environment that lies ahead, and this government-backed scheme, once implemented, will help businesses and their supply chains get back on their feet.
“This is a welcome step by the government, which mirrors similar action being taken by other countries across the world, which are facing the same issues as the UK trade credit insurance market in these exceptional times.
“If developed in the right way, this temporary scheme will give reassurance to the thousands of businesses who rely on the security that trade credit insurance cover provides.
“The scheme could help protect the supply chain, safeguard jobs and kick-start the economy, boosting business confidence as we begin to emerge from the dark shadow of Covid-19.
“The priority now is to urgently work through with the government how this scheme will operate in practice so that it can support businesses through the difficult trading environment, now and in the months ahead.”
Chris Hoy, managing director of CMR Insurance Services, part of PIB Group, added: “CMR welcomes the decision the government has decided to take. We have supported the proposal through Biba when it was first brought to light.
“We have noticed that there is less capacity in the market at the current time and that has become a key issue, so the proposed scheme from the government will be a great benefit to the insurers so they can continue to support businesses.
“CMR is happy with the action taken by the UK government, as the proposed scheme should help protect supply chains, aid the UK economy’s revival and most importantly protect jobs as we look to leave the pressures and strains Covid-19 has put on the world.”