Trade credit row could turn nasty for insurers

The trouble with the sort of help the government announced in the Budget to help ease the pressures in the domestic trade credit market is that it suddenly alters people's expectations. With many businesses, especially in the retail sector, going under in the first few months of this year, stories about the problems some firms have faced in getting adequate had a "so what do you expect?" feel about them. Now, the tone has changed.

People are looking at the £5bn top-up scheme announced by Alistair Darling and thinking that this sort of subsidy should be making the problems go away. At the very least, they will say, it should be helping soften the tough stance trade credit insurers have been taking. When this doesn't happen, things can turn nasty.

The Association of British Insurers was long on fine words in the run-up to the Budget; now people will expect action to deliver the promises it suggests in its code of practice but, as we know, it has no powers, beyond persuasion, over its members. It will take a concerted effort on the part of the ABI to make sure that political and public opinion doesn't turn against the insurance industry on this issue. So far, the insurance market has managed to avoid attracting the opprobrium directed at the banking sector. Now it has been offered a public subsidy there is a danger that many people will see it as fair game.

27 Apr 2009

Topics: Budget 09

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You seem to suggest that the Government is providing a subsidy to the trade credit insurers. This is not the case. The insurers are not benefiting from the scheme but rather helping the Government by administering the scheme. The beneficiaries of the scheme are the businesses who have had their trade credit insurance cover reduced and are eligible to take out the Government top-up insurance. The Government made it clear from the start that they would be adhering to the risk management of the insurers. Nick Starling Director of General Insurance and Health, ABI

Posted by: Nick Starling, 27 Apr 2009 | 18:41

My point, perhaps not expressed as clearly as it should have been, is that the public and many businesses will read this announcement as a subsidy and will draw parallels with the public money put into the banks. As you say, it isn't the same thing at all. Also, we might add that it is a relatively small sum of money compared to the vast sums used to prop up the banking system but, again, it is about public perception and I don't think people can really take in all these multi-billion pound sums. The danger is that seeing the trade credit support package in the same light it will put the insurance industry under pressure. The challenge for the ABI is to step up the public and political information on this topic and to ensure that member firms do not attract the wrong headlines by inept handling of high profile claims.

Posted by: David Worsfold, 27 Apr 2009 | 18:50

Given the limitations of the scheme announced in the Budget perhaps it won't set up too many expectations on insurers. But as customers get used to managing without insurance perhaps the greater danger is that there won't be a market for insurers to move back into once the current difficulties are over. So the challenge for insurers is to demonstrate how they add value to the operation of the supply chain - and hope that no-one else offers a more cost-effective alternative. Looking forward to the debate at the All Party Group!

Posted by: Jane Milne, 03 May 2009 | 22:22

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