The government should “absolutely” intervene to secure the future of the supply chain, as an increasing number of insurance firms withdraw credit cover, urged the Tories, the Food and Drink Federation (FDF) and Forum for Private Business (FPB).
Since the FDF revealed to Food Manufacture last week that it was in talks with the Confederation of British Industry (CBI) over concerns that insurance companies were suddenly withdrawing, or changing, policies - the Tories announced that the government needed to introduce “bold new measures … to help irrigate our arid economy”.The food industry insures against credit, which means that suppliers take out policies to protect against customers that defer or default on payments. But with the increased chance of insolvencies and credit complications, three primary credit insurers - Euler Hermes, Atradius and Amlin - have radically reassessed their approach to risk.
“In the past week alone, more than 12,000 British companies have had insurance cover withdrawn,” said Alan Duncan, Conservative shadow secretary of state for business, enterprise and regulatory reform. “This is placing businesses between a rock and a hard place and the pressure is pushing some of them towards extinction.”
He said that the Conservatives were working towards a solution, and suggested that the government and insurance companies could share the risk. “The government cannot assume every defaulted payment. But by sharing the risk with insurance companies … the oil in the cogs will allow the machine to continue turning,” added Duncan.
The FDF responded: “We are supportive of the idea of the government underwriting cover for some companies as a number of our members have been affected by the withdrawal of credit insurance, which is affecting their ability to trade in what is already a difficult economic environment.”
With the number of credit insurance claims going up by over 50% in the last three months, and number of companies now defaulting on payments, insurance companies are no longer in a position where they can continue their current levels of cover, said Elizabeth Jenkin, business development director at insurance broker Aon. She added: “With the increasing instances of supermarkets deferring their payments to suppliers, for example, this type of insurance is essential to reduce liabilities and limit damages to trading relationships.”
The FPB said that it is monitoring the government’s dialogue with the major credit insurers on this issue, and would continue to lobby to ensure that each application for credit insurance was judged on its own merits. “The implications for supply chains across the food industry could be severe,” said FPB spokesman Phil McCabe.