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Law360, London (April 20, 2020, 5:20 PM BST ) British insurers said Monday they are asking the government to step in to keep the trade credit market afloat to protect businesses from default risk amid the COVID-19 outbreak.
The Association of British Insurers said it is negotiating for the government to provide backing for trade credit insurance — policies that protect companies from losing out if customers who still owe money for products and services become unable to pay their debts — to keep this kind of cover from drying up amid the coronavirus pandemic.
"We are discussing with the government the scope for temporary state support to ensure that businesses can continue to obtain cover that meets their needs," an ABI spokesman said.
"This would see insurers continuing to offer cover, with limited reduction in credit limits to customers, with the government acting as a reinsurer of last resort," he added.
The spokesman said that trade credit insurers are there to help protect businesses from the risk of customers not paying their bills, but the availability of this kind of cover can fall off a cliff when faced with potential mass insolvencies such as during the current public health crisis.
Asking the government to provide a backstop through a reinsurance scheme is a way to make sure these policies remain available in times of crisis, the ABI said. British insurers paid out £315 million ($393 million) to help firms cope with bad debt in 2019.
The big insurance lobby said many European governments are in talks with trade credit insurers to figure out how to support the market and back up businesses' supply chains during the pandemic, which has now killed over 160,000 people worldwide.
The move comes after a number of trade groups signed a joint letter calling on governments to provide support to private credit insurers during the outbreak.
"We wish to highlight that the private credit insurance also provides important support to economic activity within Europe," said the letter, which was signed by the International Trade and Forfaiting Association, the Bankers Association for Finance and Trade, the Berne Union, the International Association of Credit Portfolio Managers, the International Underwriting Association and the Lloyd's Market Association.
Earlier in April, European Union regulators approved a €10 billion French program of guarantees to the domestic credit insurance market to help businesses cope with the coronavirus pandemic.
--Additional reporting by Joseph Boris. Editing by Rebecca Flanagan.
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