Retailers are pushing the UK government to expand the scheme that guarantees trade credit insurance, fearing many will be left without coverage in the end.
The trade credit reinsurance system was put in place in May 2020 and offers indemnities to specialized insurers who cover suppliers against the risk of non-payment of their customers.
It was extended in December, but last week the government confirmed it would end on June 30, the same day the moratorium on tenant evictions ended.
The British Retail Consortium has written to Business Secretary Paul Scully arguing that if insurers base their risk assessments on the recent financial performance of retailers, many will end up without coverage.
The letter, seen by the Financial Times, said the withdrawal of support was a “significant concern” and members “have already heard from several providers that major insurers have said they will remove coverage.”
Insurers typically need at least six months of consistently strong business data before reassessing coverage decisions, the BRC said. “This is clearly not yet possible for the significant proportion of the retail sector that remained closed for most of 2020-2021.”
Even when retailers provided preliminary data, insurers were slow to review underwriting decisions, the letter added – although insurers maintain that overall coverage has largely returned to pre-pandemic levels and that they take into account the disruption in trade over the past year.
Mike Stott, a credit insurance broker at Rycroft Associates, said retail “wasn’t in the right place before the pandemic and it’s going to make matters worse.”
Stott added that insurers, who were to remit 90 percent of their premiums to the government in return for the state guarantee, “need to make money this year and they can’t do it if there is. has a tsunami of claims ”.
“They will not be willing to take risks in hedging without good supporting information,” he said.
Suppliers and their lenders may be concerned about extending uninsured credit to retailers whose balance sheets have been damaged by forced store closings during closings. This could force some retailers to prepay for merchandise while they are stocking up for Christmas, tying up vital cash.
“It’s a huge problem for us,” said the general manager of a small clothing retailer. “About 10 percent of my annual sales come from prepayments that I wouldn’t have to make if my suppliers could insure against me. I could double my annual capital expenditure.
“I have presented to all the credit insurers and they support the plans, but they want to see two years of profit,” he added.
Although there has been a strong rebound in retail sales since the reopening of non-essential stores in England in mid-April, demand remains difficult to predict and operating costs will rise soon.
Data released by consulting firm Springboard last week showed that the recovery for retailers since indoor hotels was allowed to reopen on May 17 has been more subdued than expected.
The business rate holiday also ends June 30, although a discount is still available for small retailers, and the holiday plan will end during the summer.
Euler Hermes, one of the UK’s largest commercial credit insurers and participant in the reinsurance program, said it expects economic and corporate credit risks to remain at high levels ” and recognizes that these times remain difficult for many companies ”.
“We are already in contact with our customers and business partners, helping them to create a smooth transition,” he added.