The ABI's James Dalton on Carillion and the canary in the coal mine

James Dalton

  • Carillon collapse a striking reminder of the importance of trade credit
  • Collapse will cost industry £31m despite an estimated 30,000 suppliers affected
  • Trade credit needs to be about more than non-payment for goods or services
  • Firms need for adequate business insurance is greater than ever

The collapse of construction giant Carillion serves as a warning sign of the need for businesses to have adequate insurance coverage, says James Dalton, director for general insurance policy at the Association of British Insurers.

Nothing highlights how vital the insurance industry is like unwelcome events, and they don’t come much more unwelcome or high profile than the recent demise of Carillion.

The impact of a company failure for staff, suppliers and customers does not come much bigger. Few failures of recent times are likely to trigger such a big knock-on effect on other firms and suppliers in what is a very long and deep supply chain. This is partly due to the firm holding such a wide range of government contracts, such as those to maintain prisons or provide school meals.

This failure provides a striking reminder of the importance of trade credit insurance.

Trade credit insurers expect to pay claims totalling £31m to suppliers of Carillion. However, with an estimated 30,000 suppliers to the collapsed company, many firms without the fall back of trade credit cover face a worrying and uncertain time. Inevitably, there have been reports of some smaller firms experiencing difficulties as a result of Carillion’s collapse.

Carillion is the latest in a number of high-profile company failures over the past six months, including Monarch, Multiyork and Palmer and Harvey.

As well as the obvious distress to the employees, each failure will have caused significant disruption down the supply chain. One firm going under inevitably leads to collateral damage. Palmer and Harvey, for example, supplied more than 90,000 independent stores.

This depressing news, means we need to shine a spotlight on trade credit insurance – its importance in not just providing financial protection for firms against failure to be paid for goods or services, but also supporting their day-to-day trading in a range of ways. This product is a classic example of how the expertise and risk management services of insurers extends beyond simply paying claims in the event of a loss.

The insight into markets offered by trade credit insurance can give a firm that vital competitive edge, and make it easier to obtain capital from lenders. Furthermore, insurers act as the ‘canary in the coal mine’, an early warning sign of potential trouble coming down the tracks.

Trade credit insurers do a huge amount to help businesses to be financially agile and develop a commercial strategy to navigate challenging economic times. This is one of the many vital contributions our sector makes in ‘Helping Britain Thrive’, and one which businesses and policymakers need to take note of.

The risk of non-payment for goods or services is but one risk that businesses face. Others like fire, theft, weather damage have been present for years, while emerging risks like cyber-crime pose a growing threat. All this makes the need for firms to have adequate business insurance greater than ever – not just in covering unexpected financial losses, but helping them navigate through challenging trading times.

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