Insurance companies in the credit sector paid out a record £97million in the third quarter of this year due to the decline in the economy, according to experts at Birmingham’s biggest independent insurance brokers Perkins Slade.

And as a result, specialist insurers are reducing their cover and, in the case of one major provider, even pulling out of the market, meaning Midlands businesses are struggling to get credit insurance at a time when they need it most.

Credit insurance enables companies to insure against bad debt. This includes customer insolvency and protracted payment defaults, both of which are on the increase because of the credit crunch.

Sally Del Principe, an associate director at Perkins Slade and head of the firm’s credit division, says there were currently seven major operators in the sector, offering traditional whole turnover policies.

“Of these, two have been draconian in their response to the downturn in the economy, culling the sales ledger they are prepared to cover, in some cases by up to 80 per cent,” she said.

“What’s more, we are anticipating the remaining six credit insurance providers will significantly increase their premiums in the New Year.”

Ms Del Principe, along with colleague Darren Felsenstein, recently formed part of a three-man delegation to the Treasury. The aim of the visit, which was co-ordinated by Peter Staddon of the British Insurance Brokers’ Association, was to underline the importance credit insurance has in propping up the economy. As a result of the meeting, Perkins Slade have been asked to supply further information as to how other European governments have responded and also the attitude of the UK banks.

Ms Del Principe said: “Credit insurance is currently helping to shield the British economy from the worst of the credit crunch. Perkins Slade has a number of clients who, as a result of being able to claim on existing credit insurance policies, have remained in business and saved jobs.

“Credit insurance imposes good risk management disciplines on businesses, it forces them to assess the viability of those they trade with. However, as the credit crunch tightens its grip, insurance companies are being forced to pull the safety net from beneath even responsible companies such as these, leaving them exceptionally vulnerable.”