Trade credit claims double to £316m

The value of trade credit insurance claims more than doubled in the first quarter of 2009, according to the Association of British Insurers, in a period that saw withdrawals or the reduction of insurance for companies as diverse as Topps Tiles, Corus and Focus DIY.

Figures from the ABI show that in the first three months of 2009, the value of trade credit insurance claims rose 166 per cent on the same period last year, from £119m ($194m) to £316m.

The number of claims rose 48 per cent, from 6,225 to 9,213. The ABI did not say which sectors had seen the highest increase in claims.

Trade credit insurance is bought by suppliers of goods or services to a business to protect them against unpaid invoices in the event that the business is unable to pay its suppliers.

“The reason the number of claims has gone up is that businesses are struggling in this economic climate,” said Jonathan French of the ABI.

“Credit insurers are there to protect the suppliers of businesses and, as economic conditions get tougher, then there is a higher chance that companies will, for example, default on payments for goods or services received.”

As the number of claims increased in the first three months of the year, the insurers themselves had sought to reduce their exposure to suppliers of certain businesses.

The environment for credit insurance had already been souring in the autumn, when in October, trade credit insurers stopped covering suppliers to Woolworths.

Then in January, they reduced cover for suppliers of Gala Coral, the gambling group, and Focus DIY.

In February, trade credit insurers withdrew cover for suppliers of Topps Tiles and reduced their cover for suppliers of Corus, the steelmaker.

The flurry of withdrawals led the government to announce in April that it would allocate £5bn to top up cover for suppliers of businesses whose insurance was reduced but not withdrawn totally.

Last month the government backdated eligibility for the trade credit insurance top-up scheme by six months to include suppliers that have had their cover reduced since last October.