The UK Government has announced further changes to its trade credit insurance top-up scheme. These are the third changes since the scheme was launched on 1 May 2009.

The Government announced that the cost of its credit insurance top-up scheme to businesses has been reduced, and that it is doubling the amount of insurance it is prepared to underwrite.

The Government has reduced the premium from 2% to 1% of the amount of business to be covered. It has also abolished the lower requirement of a minimum of £20,000 of "top-up" cover and has increased the upper limit to £2 million from £1 million.

The scheme was introduced on 1 May 2009 and was extended in June 2009. However, only 52 companies have benefited from £1.1 million of cover so far. The Association of British Insurers and businesses have said that the scheme was too expensive so will welcome these changes.

Credit insurance is taken out by businesses, usually suppliers, to protect against the non-payment of sums owed due to the insolvency or default of a customer. In the last twelve months a number of insurance providers refused to extend credit insurance on renewal dates or reduced the level of cover available under an existing policy to many suppliers of retail businesses. In response to these events the Government introduced its top up scheme pursuant to which, until 31 December 2009 and subject to certain conditions, suppliers are able to purchase up to six months' top-up trade credit insurance if credit limits on their credit insurance for their UK customers have been cancelled and reinstated at reduced levels since 1 October 2008.

The scheme still will not cover those companies who have had their insurance withdrawn, unless it has been partially reinstated. As previously, a business can purchase up to 28 days' retrospective cover where a business requires continuity of cover from a partial reduction made by insurers in the previous 28 days.

The Government has not made any further change to the date from which the scheme can apply which remains 1 October 2008. This is likely to anger critics of the scheme who believe it should be backdated to 1 April 2008.

HCC International Insurance Company plc has now joined Atraduis Credit Insurance N.V, Coface S.A and Euler Hermes UK plc as operators of the scheme.

To read about the Government's previous announcement that the scheme would be backdated to 1 October 2008, please click here.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

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The original publication date for this article was 01/09/2009.