Trade credit insurers paid out a record £320M in claims to UK businesses in 2009 – a 95% increase on 2008, according to figures just released by the Association of British Insurers (ABI).
However, there is clear evidence that the tide is turning, said the ABI, with a sharp drop in payouts from a record £124M in the third quarter of 2009 down to a more modest £74.5M in the last quarter of 2009.
Similarly, the number of claims has been steadily dropping since the first quarter of 2009, when they peaked at more than 9,000. In the fourth quarter of 2009 this figure had dropped to just 3,428.
As claims are usually paid out some time after they are made, the most relevant figures for those looking for market trends are figures for gross claims incurred – or losses resulting from claims notified, said the ABI. These figures peaked in the fourth quarter of 2008 and the first quarter of 2009, and have dropped steadily since.
ABI director of general insurance and health Nick Starling said: “Latest ABI figures show that trade credit insurance helped UK businesses by dealing with 22,791 claims in 2009. The total amount paid in claims rose from £164M in 2008 to £320M in 2009, a 95% increase year-on-year. These figures reflect the ongoing effects of the global recession and the liquidity crisis on UK business.”
However, while trade credit insurers paid out a record amount in claims during 2009, quarter four “marked a significant improvement with the number of new claims received down 23% on the previous quarter”, he said. “This is consistent with the end of the downward trends observed in various sectors of the economy and the corresponding reduction in levels of corporate failures observed in the last quarter of 2009.”
The outlook for 2010, although improved from 2009, remained “highly uncertain” however, argued Starling. “This reinforces the importance of protection and risk management services provided by trade credit insurers.”
Access to credit insurance
Meanwhile, the issue of accessing credit insurance was still a thorny one for the food sector, said Food and Drink Federation (FDF) director, member services, Charlotte Lawson. “We were first alerted to this issue in late 2008/early 2009, when our members were telling us that they either couldn’t get credit insurance at all or that the level of cover [the percentage of an unpaid invoice the insurer was prepared to cover] had been dramatically reduced, leaving a lot of companies very exposed.
“This is really a perfect storm as if you can’t get insurance to cover your trading relationships, banks are reluctant to give you money unless you can guarantee payment on delivery from your customers.”
The trade credit insurance ‘top-up’ scheme that the government introduced last year to help firms access credit insurance was a welcome move, but had not been taken up very widely, partly because it was so complicated, said Lawson. Moreover, the scheme, which provided ‘top-up’ cover for UK businesses that had had credit insurance limits reduced, did not apply to exports, claimed Lawson. It also came to an end in December 2009, despite lobbying efforts to extend and simplify it.
Source of tension
Delegates at Food Manufacture's annual business leaders’ round table debate in January said the withdrawal of credit insurance remained a significant source of tension in the trade.
One chief executive admitted suppliers had been unable to get credit insurance on his firm: “As a result, we have had to spend a lot of time talking to our suppliers and keeping them abreast of what we are doing; keeping them comfortable that the business is moving in the right direction. Our finance director has to sit down with suppliers to reassure them quite regularly.”