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Law360, London (May 13, 2020, 11:30 AM BST) -- The government said Wednesday it will guarantee trade credit insurance until December for companies struggling to keep up with payments as it seeks to ensure that the COVID-19 pandemic does not cause the market to seize up.
Insurers have warned they face huge claims because of the crisis, which has brought much of the country to a halt, and could inflate premiums. (AP)
Insurers have warned they face huge claims because of the crisis and could have to withdraw cover or hike up premiums.
"To prevent this from happening, the government will temporarily guarantee business-to-business transactions currently supported by trade credit insurance, ensuring the majority of insurance coverage will be maintained across the market," HM Treasury said in a statement.
Prime Minister Boris Johnson has said he wants the construction and manufacturing industries to return to work this week.
The guarantees will cover trading by domestic and exporting businesses and will operate through reinsurance agreements with trade credit insurers. Full details of the scheme are still being worked out, the government said, but it should be in place by the end of May.
Economic Secretary John Glen said the move "will help to maintain a vital cog in our economy."
The Association of British Insurers said it is working with government to develop the measure, which follows similar action in Europe and Canada. European Union regulators approved a €10 billion ($10.8 billion) French program of guarantees to the domestic credit insurance market in April, to help businesses cope with the crisis.
"The priority now is to urgently work through with the government how this scheme will operate in practice so that it can support businesses through the difficult trading environment, now and in the months ahead," James Dalton, the association's director of general insurance policy, said.
The trade body said the support will help speed up economic recovery from the pandemic by enabling insurers to take on more risk than they would otherwise have been able to. It will also give businesses continued access to cover against the risk of insolvencies in the supply chain.
ABI figures show that British insurers paid out £315 million under trade credit policies in 2019.
--Editing by Ed Harris.
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