Government moves to avert credit insurance catastrophe

The government is finalising plans to help firms avoid catastrophe sparked by the sudden withdrawal of credit insurance.

As Food Manufacture went to press, the department for Business, Enterprise and Regulatory Reform was preparing to unveil a package to help affected companies. It said: "We are discussing a scheme with trade credit insurance providers which could provide breathing space for companies to address increased risks in their supply chains."

The move follows pressure from trade associations, businesses and the Conservative Party to respond to major insurance companies suddenly hiking premiums or withdrawing policies. In the run up to Christmas, 12,000 British companies had insurance cover withdrawn in one week.

The Food and Drink Federation said it would back any government proposal to underwrite some firms' cover, "as a number of our members have been affected by the withdrawal of credit insurance, affecting their ability to trade". It added: "This is very worrying for small to medium sized firms as it leaves them exposed in trading relationships."

Credit insurers' moves to slash cover dominated much of Food Manufacture's third business leaders' round table debate in London last week. One chief executive who attended the event said: "Credit insurance is an unseen black cloud running right through the food supply chain. If suppliers lose confidence in giving normal terms of credit to customers because they can't tick the credit insurance box, that's a huge issue."

Confectionery and snacks supplier Zetar was badly hit by a lack of cover after Woolworths' collapse, revealed chief executive Ian Blackburn. "We got told that credit insurance had been withdrawn in October, but were told, don't worry, the banks won't pull the plug on retailers until after Christmas. Well, they pulled the plug on November 24, two days after Woolworths had taken delivery of our advent calendars and we are now owed £1M that we won't get back. Unless something is done to address this issue there's a big danger the whole thing could explode and create problems right the way up the chain."

Long Clawson chief executive Martin Taylor added: "The sudden withdrawal of cover can create problems that snowball through the supply chain in a matter of days."

Produce World chairman Paul Wilkinson added: "Insurers are reducing cover, or refusing it altogether. The problem is that it can rapidly become a self-fulfilling prophecy if lots of suppliers suddenly stop dealing with a customer because of the withdrawal of credit insurance."

Credit insurers insure suppliers against customers unable to pay for goods they have already received.

The debate was sponsored by Eversheds and Cairnforth, and will be covered fully in Food Manufacture's March issue.