The government has announced it has agreed to underwrite trade credit insurance for the rest of the year to keep supply chains moving during the coronavirus crisis.

The Grocer first revealed on 17 April that the government was in talks with the Association of British Insurers and other industry bodies over state support for trade credit insurance due to the likelihood of a “severe reduction” in available cover.

The ABI has been calling on the government to follow models already in place in countries such as Germany, the Netherlands and Belgium, where states are supporting companies to maintain supply chains through a reinsurance scheme.

This morning the Treasury confirmed it had agreed to “guarantee business-to-business transactions currently supported by trade credit Insurance”.

A statement from the Treasury this morning explained that businesses struggling to pay bills due to the coronavirus crisis risked having credit insurance withdrawn, or premiums increasing to unaffordable levels.

It said it hoped government guarantees in this area would “support supply chains and help businesses to trade with confidence as they can trust that they will be protected if a customer defaults on payment”.

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.”

He said the guarantee would be delivered through a temporary reinsurance agreement with insurers, such as Atradius, Euler Hermes and Coface, currently operating in the market.

“The government will work with businesses and the industry on the full details of the scheme to ensure firms are supported and risk is appropriately shared between the government and insurers,” he added.

The guarantees will cover trading by domestic firms and exporting firms and the intent is for agreements to be in place with insurers by end of this month.

The guarantees will be targeted to cover economic challenges resulting from the coronavirus outbreak, and will provisionally last until the end of the year.

FDF CEO Ian Wright commented: “We are delighted that the government has introduced a guarantee scheme for trade credit insurance.

“It is news that will be warmly welcomed by food and drink manufacturers of all sizes, and an intervention we have been calling on government to introduce since lockdown first began. We look forward to working with the Treasury on the details.”

The food and drink industry believes itself to be at particular risk from a withdrawal of trade credit insurance, given that the sector is a major supplier to restaurants, pubs and other food-to-go outlets shuttered by the crisis.

James Dalton, ABI’s Director of general insurance policy, added: ”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. 

”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.”

According to government figures, £450m was paid in trade credit premiums in 2018 to cover over £350bn in business activity. 

As of April 2020 there was over £171bn, covering transactions between about 13,000 suppliers and 650,000 buyers.