Carillion and the role of credit insurance for BMF members

by Richard Ellithorne, BMF Membership Services Director
9 February 2018


Within the credit insurance industry Carillion has been a hot topic for some time. Following the three profit warnings issued in less than 6 months, it is no surprise that the credit insurers were treading carefully. With a £900m debt pile and £600m pension deficit you can see why the risk underwriters were worried. The warnings were clear to policyholders; keep a close eye on outstanding balances, keep within credit limits and be cautious.  

At the time, many were in the throes of projects and therefore trade continued as usual, as you would if you have traded with the second-largest construction company for many years without any issues.  There was also the general assumption early on that ‘the government will never let if fail, there is too much at stake. If Carillion go bust we are all in a lot of trouble’ – and what a lot of trouble it is. The ramifications are wide reaching and still unknown for the 43,000 employees and thousands of businesses who dealt with the giant. The domino effect is the wider issue of the failure and how this is going to reach businesses who, for some, never knew they were in somehow connected to the chain back to Carillion.  

Those who had credit insurance were either forewarned of this over a period of time, credit limits reduced then cancelled, or for those insured with Atradius were warned but kept cover running right until the Friday before the announcement. For these businesses they will at least see the claims payments come through from the credit limits held or in respect of binding contract cover. The latter being where cover has been withdrawn but cover remains in place to complete any binding works. Cover for retentions and advice on Retention of Title is all provided by the insurers who straight away were issuing advice to policy holders on how best to deal with any claims and mitigate the loss for both parties.  

The claim payments in many cases far outweigh the premiums paid and for many SME businesses the insurance at this point could be a lifeline. Thank goodness they had cover. Yes, for those who have had a disproportionate claim payment to the premium paid, will likely see an increase in premium next year but that won’t be forever. A good few years of claims free and a good broker to shop around will enable the premiums to remain at acceptable levels. The construction industry has been classed high risk for many years and the history of high profile insolvencies show this to be justified. In my opinion credit insurance for every company in this volatile sector is imperative. Hindsight is a wonderful thing, but, as the saying goes, better to be safe than sorry.



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