The government’s Trade Credit Reinsurance Scheme has finally been given the go ahead after months of delays, giving hope to wholesalers that slashed credit limits could be reinstated.
The deal follows the government’s announcement on 4 June that it would underwrite all trade credit insurance to the tune of £10bn in a bid to keep supply chains moving.
It aims to provide protection to businesses’ trade credit by giving insurers a ‘safety net’ to continue to provide cover to those companies operating in industries that have been impacted by the coronavirus crisis, such as hospitality.
The scheme is voluntary for insurance companies to sign up to and will guarantee cover is underwritten between April and December 2020.
The European Commission raised objections to the UK’s deal, which caused a delay in gaining state aid approval. That delay has led to wholesalers seeing their credit limits reduced.
Last month The Grocer revealed this had led to CCEP heavily reducing or wiping out wholesaler credit limits altogether as leading insurer Coface pulled its cover. In an email to customers, CCEP cited the lack of a reinsurance scheme as its insurer’s primary reason for doing so.
The implementation of the rescue package should mean credit limits will be reviewed and reinstated by insurers in-line with the European Commission’s guidelines, which read: “Trade credit insurers have committed to the UK to maintain their level of protection as before the coronavirus outbreak in spite of the current difficulties.”
A senior trade credit insurance director told The Grocer it would be joining the scheme and will now be reviewing decisions to reduce cover, but it couldn’t guarantee it would be reinstated.
“Our duty is to maintain cover and the key to reinstating cover is information,” he said. “The more information a company can provide, the better placed we will be to reassess its risk. In April the Treasury told leading trade credit insurers in a meeting that the scheme was ‘all well and good, but remember this is public money’.”
As part of the agreement the government has outlined nine situations which will enable an insurer to refuse to reinstate cover.
These range from the risk of fraud to the business’ overall performance.
Federation of Wholesale Distributors CEO James Bielby said: “While the scheme was welcome it still allowed insurers to cut cover given to suppliers to the wholesale industry. If trade credit insurance to wholesale continues to be withheld, the fragile recovery the sector is seeing will be put at risk.”
“Insurers have been considering their involvement in the scheme, with a number of major providers having confirmed their participation,” said a spokeswoman for the Association of British Insurers. “The scheme is on track to ensure that widespread availability of cover can continue.”