Retailers across the UK are calling on the government to extend the scheme that guarantees trade credit insurance, in a bid to support businesses who risk being left without cover once the scheme ends.
According to the Financial Times, the British Retail Consortium (BRC) has reportedly written to business minister Paul Scully, warning that many retailers will be left with no cover if insurers base risk assessments on their recent financial performances, as insurers typically require at least six months of “consistently strong” results before reassessing coverage.
The letter, seen by the paper, said “clearly this is not yet possible for the significant proportion of the retail industry that has remained closed for the majority of 2020-21”, adding that the withdrawal of support was a “significant concern” and retailers are “already hearing from multiple suppliers that the large insurers have stated they will remove cover”.
It added that insurers have been slow to revisit underwriting decisions, even in cases where retailers have provided provisional data.
Mike Stott, a credit insurance broker with Rycroft Associates, said retail “was not in a good place before the pandemic and this is going to make things worse”, according to the FT.
He noted that insurers “need to make some money this year and they can’t do that if there is a tsunami of claims”, adding that they will be “unwilling to take chances on cover without good supporting information”.
It comes as suppliers may reportedly “be nervous” about extending uninsured credit to retailers with damaged balance sheets in light of the pandemic, resulting in some having to pay upfront for goods as they rebuild their inventories.
According to the FT, the CEO of a smaller apparel retailer said: “It is a massive issue for us. Around 10% of my annual turnover is tied up in prepayments that I wouldn’t have to make if my suppliers could insure against me. I’d be able to double my annual capital spending. I’ve presented to all the credit insurers and they are supportive of the plans, but they want to see two years of profits.”
Euler Hermes, one of the UK’s biggest trade credit insurers, said it expects economic and corporate credit risks to remain at high levels. It said it recognises these are “challenging times for many companies, adding that it is already in contact with its customers and business partners to “help them to create a smooth transition”.
The trade credit reinsurance scheme was first introduced in May 2020 and provides cover to business to business transactions, particularly in non-service sectors, such as manufacturing and construction. At the time, the Economic Secretary to the Treasury, John Glen, said: “This country’s businesses are crucial in helping us to kick start the economy as we get back to work, and I will do everything I can to help support them through this difficult time. By guaranteeing business-to-business transactions currently supported by Trade Credit Insurance, we will help to maintain a vital cog in our economy.”
It was extended in December but last week the government confirmed that it would end on 30 June.