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Credit insurance: does extension go far enough?

Back dating the insurance top up scheme may not be enough to protect the supply chain

You don’t have to look far to find somebody in the know identifying credit insurance as the biggest issue affecting the plant industry today. The ability to insure against creditor non-payment is a crucial safeguard which is increasingly facing the strain, potentially leading to a disastrous train of ruin for everyone in the construction sector supply chain.

Due to supplementary funding, however, many more firms are able to purchase top-up cover as part of the Government’s trade credit insurance scheme.

Since the beginning of May, companies who have had their credit insurance cover reduced have been able to purchase six months top-up cover under the £5 billion Government scheme.

In a new move, eligibility for the scheme is to be backdated to include suppliers who had their cover reduced since 1 October 2008. Previously, the scheme was only available to firms whose cover had been reduced since April 2009.

Top up is available until December 2009 and allows suppliers to restore cover to the original level or double the amount they are able to obtain from the private sector up to the value of £1m if the latter works out lower.

Chief executive of the Construction Products Association Michael Ankers says: “I’m pleased that the Government has listened to the industry’s concerns. Most firms lost credit insurance before April this year.

He continues: “The extent to which the scheme will work remains to be seen. Credit insurers have to go to the Government and say that they have a firm that wants to be topped up – the firms themselves can’t put in a request. This method helps to ensure that the credit insurer is putting up the maximum it can afford to risk.”

JCB CEO Matthew Taylor has doubts that £5 billion is a large enough sum to counter the problem.

“It is difficult to say at this stage whether it is enough, but I suspect not. Arguably, there shouldn’t be a top up limit, particularly for the construction sector, which will fuel the economic recovery.”

However, Mr Taylor also envisages that the problem will stabilise over time. “Credit insurers are continually re-assessing credit limits along the supply chain. My best guess would be that it will continue to decline slowly until the fourth quarter of this year as credit insurers look at the level of risk in each country and industry sector against the background of continued uncertainty about economic recovery,” he says.

Are there any additional steps the Government should be taking in the interim period? The top up scheme relates to whole UK trade and inter-UK transactions only; it does not assist exports. One school of thought is that it should be opened up to the UK Export market to help suppliers to compete better outside of the UK. In the meantime, the current top up framework is still bringing much-needed security throughout the supply chain.

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