Credit insurance claims soar as firms go under

credit insurance claims rocketed by more than 50 per cent in the final quarter of 2008, as UK companies struggled to pay bills or collapsed altogether.

The Association of British Insurers yesterday revealed that claims soared to 8,366 in the fourth quarter, up from 5,540 in the final three months of 2007. An ABI spokesman said: "The figures reflect the fact that more companies are having problems paying their suppliers which is when trade credit insurance policies kick in."

Credit insurers help to protect companies in all sectors against unexpected losses, notably the default or insolvency of their own customers. In the retail sector, credit insurers, which oil the wheels of suppliers delivering goods to retailers, played a key role in the collapse of the pick 'n' mix retailer Woolworths late last year. After credit insurers withdrew cover in the autumn, many suppliers either stopped delivering to Woolies or demanded up front payments that hit its cash flow.

The total value of trade credit insurance claims in 2008 rose to £360m, up from £257m in 2007, said the ABI. The companies that supplied the data for the survey included Atradius, Coface UK and Euler Hermes, the three largest operators in this country.

Criticism of credit insurers that have pulled cover from companies at crucial times also prompted the ABI to published a new report yesterday. A Statement of Principles on Trade Credit Insurance explains how insurers operate and what clients can expect of them. Last week, the British Retail Consortium revealed that half of large retailers and 40 per cent of small and medium-sized ones admitted the reduction or withdrawal of trade credit insurance has undermined their ability to trade.

Ahead of the Budget tomorrow, the BRC called on the Government to provide top-up insurance cover to the level that private insurers are prepared to provide. Stephen Robertson, the director general of the BRC, said: "Without this backing, the lack of trade credit insurance will threaten the viability of more suppliers and retailers."