SMEs Reap Benefits from Trade Credit Insurance as Economic Risks Rise: UK’s ABI

Nearly £36 million ($52.6 million) was paid in insurance claims to small businesses last year, due to customer insolvency or late payment, according to figures released by the Association of British Insurers (ABI).

With the Bank of England recently cutting its outlook for UK growth amid growing economic turbulence, trade credit insurance continues to provide cover and reduce the risk to small businesses if customers do not pay their debts or pay them late, the ABI said.

Trade credit insurance continues to represent good value for small businesses, who receive 25 percent of the total value of claims paid, but pay just 15 percent of the total premium, the ABI affirmed.

In 2015, small and medium-sized enterprises (SMEs)* in the UK made almost 4,400 claims on their credit insurance policies, an increase of 25 percent on the previous year, the association said.

This is above the market average of a 19 percent rise, which, the ABI said, demonstrates how SMEs are particularly affected during this period of economic uncertainty, despite the fact that overall company insolvencies are near a record low.

ABI’s trade credit statistics also show:

• In 2015, almost £150 million ($219.1 million) in total was paid in trade credit insurance claims last year across all businesses, an increase of 41 percent on the previous year.
• Small businesses made almost 4,400 claims, accounting for 40 percent of the total claims made to trade credit insurers.
• Insurers paid out almost £36 million ($52.6 million) to small businesses, or 25 percent of the total trade credit claims which were worth £149 million ($217.7 million).
• More than 7,000 trade credit insurance policies were taken out by UK SMEs in 2015, nearly 60 percent of policies sold.

Trade credit insurance can also support small businesses by helping improve their access to bank funding, often at more competitive rates, or facilitating their expansion into new international markets by reducing the risk of exporting overseas, the ABI said.

“Small businesses are central to the UK’s economy, innovating in the market and contributing to the country’s productivity,” commented Mark Shepherd, ABI manager for General Insurance.

“However, they can also be more vulnerable to financial setbacks, and customer insolvency or late payment can have a greater impact than it does for larger businesses. Trade credit insurers can play a vital role in helping small businesses through these challenging circumstances,” he added.

“Trade credit insurance is crucial for all businesses to help them navigate potential risks. In particular, SMEs looking to grow can have confidence that a trade credit insurance policy will help them to do this whilst guarding against the unexpected,” Shepherd went on to say.

* UK SMEs have a turnover of £5 million ($7.3 million) or less.

Source: Association of British Insurers

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