Trade credit insurance "growing problem"

27-11-2008

Trade credit insurance
The withdrawal of trade credit insurance from retailers is a growing problem for the retail sector, according to an industry body, in a week that saw both MFI and Woolworths call in the adminstrators.

The British Retail Consortium (BRC) said the lack of trade credit insurance, which suppliers use to cover the cost of a retailer failing to pay for its stock, is a growing problem, especially amid smaller and medium-sized businesses.

Furniture retailer MFI gave the withdrawal of trade credit insurance as one of the reasons for its demise, while Woolworths also lost its cover, adding to the pressure that eventually led to its collapse.

Most retailers pay for stock on credit and suppliers take out insurance to cover them in the event the company cannot pay out.

However, insurers have been refusing to cover retailers at risk of going into administration and as a result, many suppliers are either refusing to continue doing business or are asking for payment up front.

A spokesperson for the BRC said: "Some retailers have been having difficulty as they have had to pay cash up front and for some, this means running up bigger debts.

"Insurers ought to be looking at the approach they are taking, because they were happy to take the premiums in the good times and they are now pulling the rug from under retailers."

The insurance industry is doing all it can to support firms but cannot insure those at highest risk, the Association of British Insurers said.

Spokesperson Malcolm Tarling said: "There are some sectors that credit insurance cannot provide for.

"These are generally where banks have withdrawn credit and failure is likely.

"There have not been any sectors that have been blacklisted, as has been reported."

Insurance itself is not the problem, Mr Tarling added, it is simply a symptom of the wider economic malaise and insurers cannot take the place of banks.

Once lending becomes more available, the situation will improve, the ABI said.

The Confederation of British Industry (CBI) said it is looking into the issue and has proposed the government act as 'insurer of last resort' to support suppliers and businesses during the downturn.

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