Cash crisis as insurers withdraw

VULNERABLE retailers and suppliers across a raft of industries face a potential cash-flow crisis as trade insurance underwriters, most notably industry leader QBE, curtail their exposure to the sector.

The pull-back in cover has caused deep concern in Europe, where it is having a similar effect on stifling commerce as the lack of credit availability.

Locally, The Australian understands electrical goods manufacturers have been told they will not be covered in relation to goods sold to two well-known retail chains, or will be made subject to more onerous conditions such as 14-day payment terms.

Until now trade insurance, also known as receivables protection, has been a low-profile service routinely extended to suppliers. Locally, QBE has the lion's share, competing with Coface Australia, Euler-Hermes and Atradius.

But international failures such as Circuit City, once the biggest US electronics chain, Woolworths in Britain and, locally, Kleenmaid's $70 million collapse have prompted insurers to tighten the terms of cover.

"If a credit insurer is not prepared to provide credit insurance for a particular retailer, that has to throw up massive warning signs for the supplier," said one local retailer. "It's kind of the opposite of caveat emptor: it's seller beware."

National Association of Retail Traders managing director Kay Spencer said "clear offshore trends", especially in Britain and Europe, implied a looming crisis. It is understood that an influential industry delegation has already approached Canberra with a proposal for a scheme to protect uninsured enterprises.

The British Government last month introduced a $10 billion trade credit insurance scheme available to 14,000 mid-sized businesses, "to mitigate against disruption to the supply chain and cash flow of 250,000 companies they do business with".

According to several insurance sources, QBE took a closer look at its so-called credit and surety business after the departure of two key executives to start a niche practice.

Among other measures, CEO Frank O'Halloran implemented risk management procedures such as weekly reporting. A rival insurer said: "Their guys are doing report after report. Frank is right on this but fortunately or unfortunately they are not pulling out of it."

QBE, the country's biggest general insurer, has exited excessively risky or unprofitable business lines in the past. Last year it stopped selling indemnity cover to stockbrokers and financial advisers after being stung by huge payouts to share traders after the collapse of Opes Prime.

Niche providers are also active in the credit insurance market. "But if one company won't cover, the others will knock you back," Mr Uechtritz said. "The global financial crisis has made people do things a little bit differently."

Attempts to contact QBE were unsuccessful, while other insurers and retailers were reluctant to comment on an issue prompting growing behind-the-scenes angst.