Trade credit, which protects companies when customers go out of business before paying for products or services, is an essential tool to support businesses trading with each other.
In May, Morgan Stanley estimated insurers worldwide could have to pay up to $46bn in trade credit claims resulting from the pandemic. In the UK it is estimated 630,000 business buy trade credit insurance each year.
The UK scheme will provide £10bn of reinsurance to the market and businesses will be able to purchase cover from the traditional trade credit insurers.
Airmic has welcomed the government initiative, while recognising the UK has lagged behind many other countries in providing this support.
“Airmic supports solutions that provide our members with contract certainty for risk financing solutions they need with appropriate cover at an appropriate price,” Julia Graham, Airmic’s Deputy CEO and Technical Director, told Commercial Risk Europe in May.
“Airmic members have customers operating in sectors that have been and continue to be severely impacted by the ongoing response to COVID-19. Our members are understandably keen to learn additional details to determine when, what and how effective this scheme will be as a platform to support businesses as they move into the post COVID-19 recovery phase.
“It is disappointing however, that this scheme comes late in the day as similar schemes have already been enacted in other European domiciles and to some extent an opportunity has been missed by the UK as the scheme could have been finalised earlier.”
The UK initiative includes domestic trade, imports and exports, while insurers will not be able to earn profits on the scheme. The scheme will also be backdated to 1 April and operate until the end of 2020.