UK Government props up trade credit insurance market
The UK Government has stepped in to prop up the UK trade credit insurance market after a 51% increase in first-quarter claims exacerbated a vacuum in available cover.
Secretary of State for Business Lord Mandelson last week launched a scheme providing up to £5 billion ($10.2 billion) of additional trade credit insurance to businesses to provide “much needed breathing space”.
“We will not prop up bad businesses or take unacceptably high risks but will provide targeted support,” he said.
As part of the UK Government’s wider Working Capital Scheme, the initiative is intended to mitigate cash flow constraints after a 58% increase in fourth-quarter claims led insurers to impose strict limitations on policies.
From May 1 until the end of the year, UK firms will be able to buy six months of “top-up” insurance from the UK Government if their customers’ credit limits are reduced.
The cover will allow buyers to restore insurance to original limits, double available private market capacity, or provide £1 million ($2 million) in cover, whichever is the lower figure.
The Government’s move follows growing concern from UK firms that reductions in the value of insurance cover have put pressure on suppliers to shorten payment terms, placing pressure on their working capital.
The Australian market faces similar trends, though the local penetration rate for trade credit insurance is much lower. Earlier this month Atradius Australia and NZ MD David Huey said the company had seen a significant increase in claims since November.
Secretary of State for Business Lord Mandelson last week launched a scheme providing up to £5 billion ($10.2 billion) of additional trade credit insurance to businesses to provide “much needed breathing space”.
“We will not prop up bad businesses or take unacceptably high risks but will provide targeted support,” he said.
As part of the UK Government’s wider Working Capital Scheme, the initiative is intended to mitigate cash flow constraints after a 58% increase in fourth-quarter claims led insurers to impose strict limitations on policies.
From May 1 until the end of the year, UK firms will be able to buy six months of “top-up” insurance from the UK Government if their customers’ credit limits are reduced.
The cover will allow buyers to restore insurance to original limits, double available private market capacity, or provide £1 million ($2 million) in cover, whichever is the lower figure.
The Government’s move follows growing concern from UK firms that reductions in the value of insurance cover have put pressure on suppliers to shorten payment terms, placing pressure on their working capital.
The Australian market faces similar trends, though the local penetration rate for trade credit insurance is much lower. Earlier this month Atradius Australia and NZ MD David Huey said the company had seen a significant increase in claims since November.