The Government has committed over £10 billion to guarantee the trade credit insurance sector, giving thousands of British businesses the confidence to continue to trade in the UK and overseas.
The backing comes after experts raised concerns over the rising risk of insolvency, which is likely to result in unaffordable insurance premiums and serious issues for liquidity and working capital across business supply chains.
According to the latest figures, trade credit insurance supports around 630,000 UK businesses each year and covers around £171 billion of transactions annually.
The insurance, which can be used to cover business to business transactions both in the UK and overseas, works by insuring suppliers selling goods against the purchasing company defaulting on payment.
But with much of the economy grinding to a halt due to Covid-19, the global risk of insolvency has increased significantly, meaning insurers are preparing to pay out millions of pounds more in claims in 2020, risking the collapse of the industry.
To prevent this cycle, the Government said it will “temporarily guarantee business-to-business transactions currently supported by trade credit insurance”, ensuring the “majority of insurance coverage will be maintained across the market”.
“Trade credit insurance is a daily necessity for hundreds of thousands of businesses across the UK – particularly those in non-service sectors such as the manufacturing and construction sectors,” said Business Secretary of State Alok Sharma.
“Our £10 billion guarantee gives peace of mind to businesses, allowing them to continue to trade and maintaining liquidity in supply chains. This reinsurance scheme is an important step as we carefully set about firing up our economy as we emerge from the pandemic.”
Welcoming the move, British Chambers of Commerce (BCC) Director General Adam Marshall added: “The launch of a government-backed guarantee to support the provision of trade credit insurance will help ensure that this vital lifeline remains available to businesses during and after this crisis, helping to maintain supply chains and trade.”
The temporary scheme will operate for nine months, backdated to 01 April 2020, with “the potential for extension if required”.