Credit insurance aid scheme flops
30-08-2009
The government’s top-up credit insurance scheme is a flop and the latest attempts to fix it are unlikely to make any difference, say small firms.
Only 52 policies, worth a total of £7.1m, have so far been covered by the scheme, which was launched in April.
The government pledged to provide up to £5 billion of trade credit insurance to businesses that had suffered reductions in the level of cover provided by credit insurers because of the economic downturn. Firms can buy “top-up” insurance for six months to match the cover still being provided by their insurer.
But the scheme’s narrow focus — notably the fact that it excluded firms whose cover was completely withdrawn — has meant that it has been of little use to most firms. Since launching the scheme four months ago the government has changed it twice in an attempt to attract more interest. Two weeks ago it scrapped the lower limit of top-up cover, doubled the upper limit to £2m and reduced the cost of cover from 2% to 1%. The scheme runs to the end of December.
Phil McCabe, a spokesman for the Forum of Private Business, said: “So far the government’s trade credit scheme has clearly been a flop. It has benefited only a handful of struggling firms and extending it in this way will not significantly improve it because the most vulnerable firms, those that have had their credit insurance withdrawn completely, remain exposed. And with late and non-payment on the rise, these firms will continue to suffer.”
Vince Caldicott is the owner of Premier Contract Supplies, a Hampshire firm that supplies bathrooms to housebuilders and hotels. He is scathing about the top-up scheme. “The government’s scheme has been absolutely no use to us because the credit insurance industry has made a blanket decision not to touch the construction sector. I have had no positive effect from it,” he said.
“We used to have credit insurance for five of our seven biggest customers but now we can get cover on only two of them. But we have to continue trading without cover because otherwise we wouldn’t do enough business to survive,” said Caldicott.
“At the same time our suppliers now can’t get insurance cover on us because we are classified as being part of the supply chain to the construction industry. So in many cases our credit limit has been reduced or taken away. It has been a double whammy. We managed to secure bank funding to help us through the recession but I am having to spend that money paying suppliers upfront because I can’t get credit. It is a nightmare.”
The Federation of Small Businesses is now calling on the credit insurance industry to step in and fill the void to help small firms.
Stephen Alambritis, spokesman for the federation, said: “We think that the credit insurance industry has let itself down and it should do what it is there to do. Small businesses want to deal with the credit insurers themselves rather than through some government scheme.
“This is a crucial time because the recession has bottomed out and if there are any signs of recovery in the economy then businesses will want to be able to say yes to contracts and will need credit insurance in place quickly. Credit insurance is crucial in today’s uncertain world. It has an important role to play for businesses that are trading in risky areas and taking on big contracts. It is a source of reassurance.”
Sean Purrington, regional director of Atradius, one of Britain’s largest credit insurers, said that his firm hoped to start providing more cover towards the end of this year. He said that other credit insurers would be likely to do the same.
“As the economy improves we are starting to extend more trade credit. The taps are being turned on again. We are looking to write more cover as we move into the final quarter of this year.”
However, he also had a warning for small businesses, saying: “I don’t think the industry will be the same as it has been in the past. We will see prices being higher and risk-sharing being greater.”
The Department for Business, Innovation & Skills said: “The government’s top-up scheme is providing temporary help for businesses as they readjust to changed conditions. Our evidence indicates that most businesses are now managing their credit risks actively, reducing their dependence on trade credit insurance. Businesses that have not been eligible for this scheme also need the opportunity to adjust to reductions in their trade credit insurance cover. The changes announced will allow more businesses to benefit from this breathing space so that they can adapt to these new circumstances in the longer term.
“Steady take-up of the government’s top-up scheme confirms that businesses are finding more reliable, long-term solutions to this type of insurance.”
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