“Unfortunately, due to the adverse weather and the significant increase in accidents we will be withdrawing your car insurance until the weather improves.”
I am sure you know where this is going. There has been much said in the past few months about the credit insurance industry and relatively little has been positive. However, I don’t think much good is served by bashing the credit insurers.
They are, like most of us, normal people trying to make a living and for many years they provided a service that most companies chose to buy. The problem is not with the insurers, it is with the business model of the credit insurance industry. It doesn’t really work.
The whole point of insurance is to smooth out risks. In the same way that car insurance needs to cover you in sunshine or snow, credit insurance needs to cover suppliers in good times or bad. That is why the premium is paid.
Diagnosing the problem is relatively easy. Providing a solution is less straightforward. But there are perhaps two ways in which the issues that many suppliers and retailers have experienced with credit insurance might be overcome in the future, when the markets are fully open once again.
The first is for suppliers to demand long-term credit insurance cover in return for their premium. If the insurance supplied is not valid for at least a rolling three-year period then it really isn’t worth the premium. Many credit insurers may not wish to insure on such a long-term basis – they may well argue that the risks over such a period are too great. Ultimately that will be a commercial decision for them to make.
Which takes me to my second suggestion. Retailers should get together with their key suppliers and self-insure. The mechanic is fairly simple – both parties set aside an amount each month and this is placed in an escrow account.
Over time, enough is built up to cover the supplier inventory and the contributions can be suspended. If the retailer gets into difficulties the money is there to cover the supplier’s inventory. If the supplier ceases trading with the retailer they can take their share of the fund to a new retailer operating the same scheme.
This process could be undertaken by each individual supplier and retailer, or it may be something that a respected and independent body such as the British Retail Consortium takes on and administers as an honest broker.
It is not a perfect solution – it would need some management and a little creativity to make it work smoothly. But if I were a supplier I know I would rather pay into a self-insured fund that would always be there than pay premiums in the good times only to have no insurance in the bad.
Neil Gillis is chief executive of Blacks Leisure