Get ‘practical’ to get credit insurance

Food and drink firms must adopt a more practical approach to getting credit insurance, according to a leading broker.

The call, by insurance broker Jardine Lloyd Thompson (JLT), follows last week’s announcement by first secretary of state Lord Mandelson that he was backdating eligibility for the trade credit insurance top-up scheme to October 1 2008 to help firms that have had their credit limits reduced since that date.

Under the top-up scheme announced by chancellor Alistair Darling in the budget, companies were only eligible from April 2009. This restriction had come under severe criticism from the industry, since many firms had been badly hit prior to that date.
Ian Edwards, of JLT’s Food and Drink Practice, said: “Much of the criticism [of credit insurance providers] is valid and has prompted recent government intervention in the form of a top-up scheme to support companies whose insurers have reduced cover.”
Edwards suggested that in the current “hard” insurance market, it is important for food and drink businesses to take steps to protect themselves.
“Credit insurers will be the first to admit they don’t get it right all of the time,” he said. “However, when cover is withdrawn it does make sense for policyholders to take practical steps and obtain as much background information from their insurer as possible.”
The removal of credit insurance over the past year has caused many UK food manufacturers significant problems, resulting in financial losses that have pushed a number to the brink of collapse​. However, Edwards pointed out some of the reasons behind the removal of cover.
“It will be no surprise to hear that all credit insurers are experiencing record claims activity in the current climate,” said Edwards. “Unlike the banks, the position of credit insurers is totally unsecured. If a company fails, they cannot mitigate their loss by exercising charges over assets.
“The demise of Woolworths was a case in point - while the banks were reported to have emerged largely unscathed, the cost to the credit insurance market ran in to tens of millions of pounds. It is inevitable, therefore, that the insurance market has adopted a more cautious approach to writing risk and pricing cover.”