Credit insurance for construction cut by £10bn

Credit insurers have slashed the level of cover they are prepared to offer construction firms by £10bn in the past 12 months, CJ has learned.

The collapse in the availability of credit insurance puts thousands of SMEs at risk, leaving them exposed to bad debts.

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A year ago around £25bn of construction work was credit insured but that figure has fallen by 40% in the past 12 months to £15bn, according to Tom Rolfe, consul-tant with LDPA Credit Insurance.

Existing credit insurance providers to the construction market such as Euler Hermes and Atradius have been getting more selective about what they will cover, while Amlin, which had been one of the top five players, has quit the sector completely.

At the same time, credit insurance rates have risen by 10%, a knock-on effect of the rise in insolvencies.

One finance director of a medium-sized contractor which once had a £10m facility but now finds it impossible to obtain any credit insurance said it is now being forced to pay some materials suppliers up-front.

"This is coming on top of other financial issues - for example we are already having to live with delays in payments to us by our clients, especially those in residential housing," he said.

The position has deteriorated so much that Michael Ankers, chief executive of the Construction Products Association, has called on the Government to step in to top up the shortfall in credit insurance.

He said: "We want to avoid credit insurers imposing a blanket embargo on all construction work.

"And when there is a situation where they cannot provide cover we would like them to explain why, so that there is an opportunity to respond.

"A typical example, where cover has been slashed from £200,000 to £100,000, is one where the Government should step in with a top-up.

"The French government is doing just this."