The effect of credit crunch is spreading like a virus. Insurance companies are faced with a surge of claims by the companies holding policies of credit insurance. The surge is almost 30%, as per a report by the Association of British Insurers (ABI).

ABI data to be released this week indicated 31% rise in claims in the second quarter of 2008. Company insolvencies were likely to add to the number of claims in the third quarter.

Credit insurance policies are meant to protect suppliers from financial losses by the companies if they fail to pay on time for the material or services provided by the suppliers. According to ABI’s director of general insurance Nick Starling, trade credit insurance claims are the barometer of the economic condition and its impact on the UK businesses. He remarked that increasing number of claims was a pointer to the pinch being felt by the UK businesses.

Credit insurers had been ignored when businesses were doing well and the economy was quite strong. The pulling of credit insurance cover has affected many big companies including sports retailers JJB and Woolworths in the last two months. Starling recalled that ABI had witnessed a surge in claims and bad debts during the bust in 2000.

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