COMMENT: Covid-19 trade credit reinsurance schemes remain a mystery

Published in: Risk, Reinsurance, UK, Rest of Europe, Covid-19

Government backing for trade credit insurance was an important tool in efforts to keep the economy moving during the uncertainty of the Covid-19 pandemic. 

At least 11 countries across Europe designed and implemented reinsurance schemes with remarkable speed in mid-2020, and most had concluded by 30 June this year. But finding out how much impact they had is proving quite tricky.

InsuranceERM asked the UK, French and German governments to disclose the total premiums they had accepted, and how many claims had been paid by the time the schemes ended.

They all declined to say, arguing there was commercial sensitivity around releasing the numbers (despite us requesting aggregate figures) and that claims were continuing to come in so any disclosure would be premature.

In a brief response to our Freedom of Information request, the UK Treasury acknowledged public funds were at stake and there was public interest in knowing whether the government was achieving value for money.

“However, there is also a strong case for non-disclosure, as we consider that release is likely to prejudice the commercial interests of the companies concerned. Additionally, release might undermine the negotiating position of government departments in any future negotiations on contracts of this type,” the HM Treasury statement said.

There is little doubt premiums outweighed claims in the trade credit reinsurance schemes, producing a significant financial windfall for governments

Needless to say, it was disappointing to see the private sector involvement effectively barred any disclosure of an important public-private partnership. And the worry about “undermining future negotiations” makes me wonder whether the government is planning to make money from future schemes? I hope this doesn’t set a precedent.

There is little doubt premiums outweighed claims in the trade credit reinsurance schemes, producing a significant financial windfall for governments. It’s also true trade credit insurers appreciated them – initially, at least.

It’s easy to forget the fear and uncertainty that hit the economy in March 2020. Governments pulled as many levers as they could to keep the wheels turning. Analysis by the European Systemic Risk Board sized the support provided by the EU’s trade credit schemes at €227bn ($265bn), compared with €1.58trn of public guarantees and €327bn of direct grants.

This perhaps is one lesson to be learned: the other levers were so effective in preventing the mass insolvencies that would have led to large trade credit claims, they eventually made the trade credit schemes less vital.

Another lesson might be on when to wind up the schemes. Amid the uncertainties around the path of the pandemic, it’s difficult to argue they should have been wound up sooner. But a mechanism that could extend or curtail the schemes in response to the level of claims would have been useful.

Better coordination between countries, especially within the EU, would also have been helpful for insurers. The schemes all came under state aid rules, so it was up to each country to devise the plans. Insurers found the administration challenging.

I cannot criticise too harshly. The schemes were brought to life quickly amid many competing priorities. They did the job expected of them, even though the job ended up being small.

But I’m still curious to see the numbers, and I think taxpayers deserve to know.

Christopher Cundy
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