The Association of British Insurers (ABI) has backed the UK government’s plan to develop a temporary reinsurance scheme to help businesses recover from the impacts of the Covid-19 lockdown.
In proposing the scheme, which will be delivered through a guaranteed temporary reinsurance agreement with insurers currently operating in the market, the UK government acknowledged that traditional trade credit insurance may be withdrawn or prove too expensive for businesses facing buyer defaults in the current economic climate.
The ABI said the reinsurance scheme could help speed up the economic recovery, ensuring the continued availability of trade credit insurance in the face of unprecedented financial pressures currently being faced across most business sectors.
It follows similar action being taken in other European countries, and Canada, where state- backed schemes have been developed to help businesses continue to benefit from affordable trade credit insurance protection.
Details on how the scheme will function are yet to be worked out, but the UK government said guarantees will cover trading by domestic firms and exporting firms, will be temporary and targeted to cover Covid-19 economic challenges, and will provisionally last until the end of the year.
A review of the trade credit insurance market, to ensure it can continue to support businesses in the future, will follow.
The UK government intends to work with businesses and the insurance industry on the full details of the scheme to ensure that risk is appropriately shared. It hopes to have agreements in place with insurers by the end of May.
If implemented correctly, this government-backed scheme should allow businesses to continue to access cover against the risk of supply chain insolvencies, according to the ABI.
James Dalton, director of general insurance policy, said: “As we emerge from lockdown and restart the economy, we have worked with the government to outline the difficult trading environment that lies ahead, and this government-backed scheme, once implemented, will help businesses and their supply chains get back on their feet.”
“This is a welcome step by the government, which mirrors similar action being taken by other countries across the world, which are facing the same issues as the UK trade credit insurance market in these exceptional times. If developed in the right way, this temporary scheme will give reassurance to the thousands of businesses who rely on the security that trade credit insurance cover provides.”
“The scheme could help protect the supply chain, safeguard jobs and kick start the economy, boosting business confidence as we begin to emerge from the dark shadow of Covid-19. The priority now is to urgently work through with the government how this scheme will operate in practice so that it can support businesses through the difficult trading environment, now and in the months ahead.”