Credit insurance scheme extended

Government improves the terms of its trade credit insurance top-up scheme

The government has revised its £5bn credit insurance guarantee scheme for the third time since it was announced in May, doubling the amount per company it is prepared to underwrite.

The price of the top-up cover has been halved to 1% and the £20,000 lower limit on top-up cover has been removed, with the upper limit raised from £1m to £2m.

The scheme, which was launched on May 1, has been blighted by poor take-up, with only 52 companies enjoying £1.1m of cover and the cost of the top-up cover has also been criticised by the Association of British Insurers.

The scheme, which runs until 31 December 2009, is a short-term intervention designed to tackle the reduction in insurance cover against business customer non-payment.

A Department for Business, Innovation & Skills (BIS) spokesman said: “This top up scheme is providing temporary help for businesses as they re-adjust to changed conditions – our evidence indicates that the majority of businesses are now managing their credit risks actively, reducing their dependence on trade credit insurance.”

The scheme allows suppliers to purchase government-backed insurance to either restore cover to the original level or double the amount they are able to obtain from the private sector up to the value of £2m (whichever is the lower).

At first it extended to companies that had seen their policies reduced since the start of April. This was backdated to cover withdrawn cover since October 2008 in June.

Four credit insurers (Euler Hermes, Atradius, Coface and HCC) are offering the scheme to their eligible clients.

Eligible businesses have been advised by BIS to apply for the scheme through their credit insurance provider.

Meanwhile, the energy regulator, Ofgem, has warned Britain’s big six gas and electricity suppliers that it would launch a full investigation unless action was taken to ease new credit restrictions on 250,000 small businesses.

Power companies have told some of their small business customers that they must pay their energy bills seven months in advance, with business lobby groups warning that this could push many of them into bankruptcy.

Despite dramatic price falls in the wholesale electricity markets in recent months, energy companies have started to apply tough new conditions to shield themselves from sharp rises in corporate insolvencies.

The Federation of Small Businesses (FSB) has reported that recession-hit companies had been finding it increasingly difficult to secure contracts from suppliers without big deposits and other restrictions.

Trade credit insurers, which pay the bills of companies entering insolvency, are increasingly rejecting applications for new energy-supply contracts as they look to reduce their exposure to risky sectors.

Ofgem said that in addition to its own inquiry, it could refer the industry to the Competition Commission if suppliers did not act voluntarily to relax the new harsher payment terms.

© Crimson Business Ltd. 2009

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