Retailers are urging the UK government to expand its trade credit insurance guarantee scheme, with concerns that many will be left uncompensated at the end of their insurance.
Trade credit reinsurance scheme Introduced in May 2020 We also provide compensation to professional insurers that cover our suppliers against the risk of non-payment by our customers.
The UK Retail Consortium, in a letter to Business Minister Paul Scully, argues that many insurers are not covered if they make a risk assessment based on the retailer’s recent financial performance.
A letter from the Financial Times said the withdrawal of support was a “grave concern” and members “have already heard from multiple suppliers that major insurers have announced that they will withdraw their coverage.”
According to the BRC, insurers typically require at least six months of consistent and strong transaction data before reassessing coverage decisions. “Obviously, this is still not possible for a significant proportion of the retail industry, which remains closed for most of 2020-2021.”
The letter further added that insurers were slow to rethink their underwriting decisions, even if retailers provided provisional data, but insurers have nearly returned their overall coverage to pre-pandemic levels. And take into account the trading turmoil of the last year.
“I wasn’t in a good place before the pandemic, but this would make things worse,” said Mike Stott, a credit insurance broker at Lycroft Associates.
Insurers who had to give more than 90% of their premiums to the government in exchange for state guarantees said, “We need to make some money this year and if a tsunami hits it I can’t do it. “
“They wouldn’t want to take advantage of concealment opportunities without proper supporting information,” he said.
Suppliers and their lenders can be nervous about providing uninsured credit to retailers whose balance sheets have been damaged by the forced closure of stores during lockdown. This forces some retailers to prepay their merchandise as they build their inventory for Christmas, which can put pressure on significant cash.
“This is a big problem for us,” said the CEO of a small apparel retailer. “About 10% of my annual sales are tied to prepayments that I don’t have to pay if the supplier insures me. I can double my annual capital investment.”
“I have proposed to all credit insurers, they support the plan, but they want to see a two-year profit,” he added.
Retail sales have recovered significantly since the UK’s non-essential stores reopened in mid-April, but demand remains difficult to predict and operating costs will rise shortly.
Data released last week by consultancy Springboard show retailers’ recovery since indoor hospitality was allowed to reopen on May 17. More calm Than expected.
Business-rate holidays will end on June 30, but smaller retailers will continue to receive discounts and vacation plans will gradually shrink during the summer.
Euler Hermes, one of the UK’s largest trade credit insurers and a member of the reinsurance scheme, expects economic and corporate credit risk to remain at high levels: “For many, these are We recognize that it will continue to be a difficult time. “
“We are already in contact with our customers and business partners to support a smooth transition,” he added.
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