Government insurance top-up scheme' doesn't go far enough'

The trade credit insurance market faces further unrest despite some recently announced help for industry, an expert has warned.

Indeed the Government’s new trade credit insurance top-up scheme could leave many no better off, according to Andy Kay from Horwath Clark Whitehill.

“It tried to address one of the biggest issues impacting businesses at present, that of restoring confidence in trading partners,” said Mr Kay.

“While, on the face of it, such an initiative is to be welcomed, an examination of the practical realities of its make-up means that the scheme is not going to provide an answer for everyone.”

By operating as a top-up arrangement, the Government had not tried to second guess underwriters’ judgments and had endorsed the need for the market to price risk.

“However, in many instances, businesses have seen credit insurance cover simply be withdrawn totally and hence there will be no existing cover to ‘top up’,” cautioned Mr Kay. “The scheme is only relevant to companies who have had limits reduced, as opposed to having them removed in their entirety, and, in this regard, it does not seem to go far enough.”

But what happens if you have successfully topped up an existing policy and, subsequently your insurance provider withdraws cover?

“A further review of the rules would suggest that the top-up scheme will expire insofar as new transactions go from the point of withdrawal – again, not particularly helpful,” said Mr Kay.

And further issues surround the timing of the scheme and eligibility.

He said: “An application for top-up can only be made if the reduction in insured limits was after April 1, 2009. Prior to this date it will be ineligible for Government assistance and so companies will be unable to claw back any loss.

“With trade credit insurance claims leaping by 51 per cent year on year in the final three months of 2008, there are a huge number of instances, many of which have been well documented, where cover will have been reduced prior to the cut-off as the credit insurance market attempted to redress its risk profiles. Again, it appears the top-up scheme has not addressed this issue.”

Mr Kay points out no new policies will be provided by the Government after December 31.

He added: “It is unclear what is to happen after this date.

“I suspect there will be continued unrest in the credit insurance market at this time as insurers take further steps to protect their books of business during the remainder of this current year. Policy extensions will surely need to be provided beyond 2009.”