UK Chancellor of the Exchequer, Alistair Darling, announced in the 2009 Budget measures to address the challenge for businesses as a result of the reduction of trade credit insurance (see our previous blog on recently published guidance governing the trade credit insurance industry by clicking here).
Currently 14,000 UK companies buy trade credit insurance against supplies to over 250,000 UK businesses as a guarantee that their bills will be paid. A reduction in credit insurance limits is increasing the pressures on firms causing an abrupt disruption of supply to cashflow, and tending to reduce the level of trade.
The Trade Credit Insurance Scheme (the Scheme) will 'top-up' private sector trade credit insurance schemes for a six month period, from 1 May 2009 until 31 December 2009, allowing suppliers to purchase six months' 'top-up' insurance from the Government if credit insurance limits on their UK customers are reduced (back-dated to start from when the insured level of cover under the underlying policy was reduced).
Private sector insurers will provide the product on the Government's behalf, and the Government and insurers have been working together to ensure the Scheme is well targeted and protects taxpayers' interests.
The amount available to each supplier will be the lowest of:
- that which restores the level of cover to the amount previously held by the insured;
- that which doubles the amount the company is able to obtain from the private sector; or
- £1 million.
The minimum amount of cover that can be purchased under the Scheme is £20,000 and the Scheme will be capped at £5 billion.
The Government envisages that the Scheme, by increasing certainty between suppliers and their customers, will benefit companies from all sectors of the economy and from each stage of the UK supply chain. The cost of the top-up policy will be calculated at a rate of two percent of the level of cover provided under the Scheme.
Further details are expected as the British Insurance Brokers' Association (BIBA) has announced an insurance summit to discuss the operation of the Scheme with the Treasury, the Department for Business Executive and Regulatory Reform and credit insurance brokers. The summit is due to take place on 7 May 2009.
For a link to the relevant section of the Budget Report (paragraph 4.14) please click here.