The Construction Leadership Council guidance on trade credit insurance during COVID-19 has been updated to reflect the latest reinsurance scheme information. The Scheme has been extended by 6 months to 30 June 2021 and approved under relevant state aid rules.
Trade Credit Insurance (TCI) plays a significant role in construction, giving businesses throughout the supply chain the confidence to trade with one another.
The coronavirus (COVID-19) pandemic has created problems for many businesses. Given the sudden disruption to economic activity, reduced cashflow and the resulting increased risks of insolvency and default in the market, businesses have seen trade credit insurance withdrawn, premiums increasing significantly, or the level of cover offered reduced. The withdrawal of cover could cause further difficulties for businesses, by placing pressure on liquidity, necessitating changes to payment terms, and depriving SMEs in the construction sector access to trade credit, on which they depend.
TCI provides protection for businesses when customers do not pay their debts owed for products or services. A TCI policy will reimburse the policyholder in the event of the buyer’s non-payment, up to a certain credit limit set by the insurer. This form of insurance can prevent the negative impact of non-payment from having a ‘domino effect’ along construction supply chains.
The Trade Credit Reinsurance Scheme is a £10bn temporary business support measure to help mitigate the impacts of COVID-19 by offering support to businesses through trade credit insurers. The Scheme is delivered through a reinsurance agreement and is now operational. It has been approved for EU State Aid. The reinsurance covers trading by domestic firms and exporting firms with payment terms of up to 2 years.
Government will reinsure 90% of insurance claims up to a cap of £3bn total industry insurer losses and 100% of claims between £3bn and £10bn of total insurer losses. The Government will receive 90% of gross policy premiums and return 35% of these premiums to insurers to cover their costs.
The reinsurance will be temporary, backdated to 1 April and lasting until 30 June 2021. It will be followed by a joint Department for Business, Energy and Industrial Strategy (BEIS)/Her Majesty’s Treasury (HMT) review of the TCI market to ensure it can best support businesses in future.
The scheme is also complementary to the export credit insurance routinely provided by UK Export Finance (UKEF) as part of the Government’s support for exporters. UKEF will continue to provide credit insurance related to export contracts, which cannot be supported by the private insurance market.
Businesses in the Construction sector do not need to apply directly to the scheme. They will apply to their insurance company as normal. Support is administered directly between the Government and those trade credit insurance providers that have signed up to the scheme.
The scheme will not affect UK construction businesses’ eligibility for other business support measures during the COVID-19 pandemic including the Coronavirus Job Retention Scheme (CJRS) and Coronavirus Business Interruption Loan Scheme (CBILS) etc.
It is hoped that the reinsurance scheme will increase confidence and allow as many UK businesses in the construction sector as possible to continue to access TCI throughout this period of economic disruption. However, insurers are expected to continue to take responsible underwriting decisions – maintaining their underwriting standards and risk management practices, to ensure that support is offered to businesses that can trade out of the current situation. As a result, there may be some circumstances where it is appropriate for a business’ credit limits to be reduced or withdrawn.
Read the full guidance here.
SAEMA (Specialist Access Engineering and Maintenance Association), as the provider of the best training and guidance in the temporary and permanent suspended access industry, is particularly keen to share news and guidance relating to matters designed to help those in the construction industry during the coronavirus restrictions.
At the time of publishing this story, the number of deaths in the UK as a result of COVID-19 has just exceeded 75,000. We, along with everyone else, are hoping that the vaccine will see a sharp decline in the rate of infection and that life can return to normal in all areas, including the construction sector and supply chain.