Covid-19: Government plans for a temporary reinsurance scheme so businesses can continue to access trade credit insurance
CMR, which is part of PIB Group, is pleased to see today's Government announcement that it intends to develop a Government-backed temporary reinsurance scheme to help businesses recover from the impacts of COVID-19. Our input with BIBA (British Insurance Brokers' Association), the ABI (Association of British Insurers), the CBI (Confederation of Business Industry) and BEIS (Department for Business, Energy & Industrial Strategy) has been invaluable in supporting the scheme that could help speed up the economic recovery, ensuring the continued availability of trade credit insurance. This support from the Government during unprecedented financial pressures currently being faced across most business sectors is a real positive step. Other European countries, and Canada are also developing state-backed schemes to help businesses continue to benefit from trade credit insurance protection.
The ABI has been at the forefront of this project and CMR will continue to work with them through BIBA to help the Government develop the scheme. This will allow businesses to trade with confidence even during these challenging economic circumstances. There will be, without a doubt, a difficult trading environment over the coming weeks, months and maybe even years, but a Government-backed scheme, once implemented, will help businesses and their supply chains get back on their feet.
The scheme aim is to allow businesses continued access to insurance cover to protect them against the risk of a bad debt destabilising them. This temporary scheme would guarantee business to business transactions, currently supported by Trade Credit Insurance, ensuring the majority of insurance coverage will be maintained across the market.
The guarantee will be delivered through a temporary agreement with insurers currently operating in the market and will only cover trading by UK companies domestically (UK to UK trade) and those UK firms who are exporting.
Whilst the terms of temporary reinsurance scheme have not been agreed at this stage, we understand that the Government will continue to work with credit insurers on the full details of it, with a view to having an agreement in place by the end of May 2020. Any agreement will last to the end of 2020, whereupon a review of the trade credit insurance market will be conducted to ensure that the insurers can continue to support businesses in the future.
Trade credit insurance should be considered as an essential component in the sales process for any business offering credit terms. Not only will it provide vital protection to help minimise the risk of bad debts but also instil additional disciplines in the credit management process. It could improve cash flow and ultimately increase profitability. It allows for the increase in sales, safe in the knowledge that each customer has been assessed for creditworthiness
Trade credit insurance is a dynamic and unique product where levels of cover adapt regularly to economic conditions. It protects businesses if customers fail to pay for products or services or pay them later than the payment terms dictate. If there is a cash-flow issue in a supply chain this could affect more than the direct supplier or customer. Businesses linked in any way to this supply chain could be affected. COVID-19 can and will cause cash-flow issues and company failures, so support from the Government would be a very positive step to allow continued support to businesses. Some Credit insurers provide an ongoing service to their clients by advising and providing information on the financial strength of their customers and markets that they trade and are looking to trade with.
James Dalton, ABI's Director of General Insurance Policy, 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 Limited, part of PIB Group, said:
"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."
Further information from the goverment can be found here.
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