Credit insurance top-up to have limited impact

Only a tiny number of companies are expected to apply for the Government's £5bn credit insurance top-up scheme, it emerged last night, despite the Chancellor's insistence in the Budget that the plan would help the retail, construction and motor sectors.

A key limitation with the proposal is that only businesses that have their insurance cover scaled back between 1 April and 31 December 2009 will be able to apply for top-up cover, which the Government is to offer for six months. Nor will businesses that see their cover withdrawn altogether be eligible for the scheme.

Amy Collins, a partner at the law firm Olswang, said: "The scheme does not seem to take account of the fact that retail businesses have been affected by the downturn in the credit insurance market for many months now."

Credit insurers have been accused of contributing to the demise of retailers such as Woolworths by withdrawing cover, but the leading players have suffered hefty losses of their own from paying out claims to clients.

The Government has pledged to match the cover offered to businesses by leading credit insurers. But concerns were also raised yesterday about how many businesses will want to – or be able to – pay the top-up fee of 2 per cent of the credit limit available.

Fabrice Desnos, the chief executive of Euler Hermes UK, a leading credit insurer, said: "What is impossible to predict is how many companies will actually want to pay for it." While he welcomed the scheme and said thousands of businesses might qualify, he warned: "We don't expect the take-up for the scheme to be very high". Shaun Purrington, a director at insurer Atradius, added: "The application of the scheme could have been broader."