The Food and Drink Federation (FDF) is urging the government to take swift action on the issue of credit insurance, as the current situation is crippling the competitiveness of the sector.
In a letter to Peter Mandelson, secretary of state for business, enterprise and regulatory reform, the FDF suggested that the government could guarantee up to 50% of credit insurance claims for companies that have had their cover reduced. Credit insurance covers clients against losses from trading with companies that go bankrupt.
“We fear that the current situation [large numbers of insurers withdrawing or changing policies] could destabilise an already weakened economy and further undermine the competitiveness of our sector. We note with some alarm that approximately 3,000 jobs were lost in our sector alone in January as a number of firms closed or went into administration,” read the letter signed by FDF director general Melanie Leech.
“Food and drink companies face a difficult decision: can they risk trading without adequate cover or do they have to reluctantly stop supplying major customers? It’s Hobson’s Choice ... We ask you to end the media speculation and give some clarity for food and drink manufacturers about your plans as soon as possible.”
The letter said that the recent collapse of Woolworths had proved to be a harsh lesson for some food companies which did not have the necessary insurance in place.
The letter comes after Food Manufacture reported in January that confectionery and snacks supplier Zetar was badly hit by a lack of cover after Woolworths’ collapse, losing £1M.
The Department for Business, Enterprise and Regulatory Reform (DBERR) said that businesses of all sizes were making the government increasingly aware of instances where trade credit insurance is being withdrawn or reassessed. It added that government was preparing to unveil a package to help affected companies, but refused to comment on when this would happen.
One industry source said that it was her understanding that the government was going to announce its plan “any day soon”, but that was back in January. “Since then, however, the situation has worsened, and in some cases credit insurance withdrawal was acting like a stranglehold on business and trading relationships.”
The Association of British Insurers (ABI) confirmed that it had been “working closely” with the government to find a solution to the lack of credit availability in current market conditions, said Nick Starling, ABI’s director of general insurance and health.
The ABI said that it had also written to Lord Mandelson to propose that a forum be established involving DBERR, the insurance sector and affected businesses to address the issue.