BIRMINGHAM, 19 August 2008 – The construction sector could be refused credit insurance, which covers bad debt following the insolvency of a customer. Aon Trade Credit has warned that a very large spike of insolvencies predicted towards the end of 2008 could mean that credit insurance costs could rise by at least 10% but, more worryingly, could lead to underwriters withdrawing cover during this crucial time.

The rise in insolvencies is attributed to:

• pressure on subcontractors to accept discounted contract values and longer terms of payment - cashflowcash flow continuing to be squeezed in all areas of subcontracting, especially electrical, structural steel and specialist roofing;
• the increase in raw material costs, especially steel and aluminum, affecting margins;
• plummeting demand for residential house building and a substantial reduction in commercial building;
• lengthy applications of payment - Olympic construction has failed to boost the commercial sector, which remains heavily reliant on school refits - with inherent delays of local government funding and on settlement of applications forof payment.

David Thomas, director for Aon Trade Credit, said: “Insurers are doing their best not to flee from risk in the way that they have in previous recessions. However, with their loss ratios running in excess of 130% on recent years, we’re are predicting a severe increase in premium rates and an inability to negotiate long term trade credit insurance arrangements. As a result, this is a very busy point in the UK construction insurance cycle and underwriters with commitment to construction are now at a premium. We’re working with those insurers who are closest to the sector, who are most willing to visit our clients' customers and therefore have the best understanding of the issues.”

Aon recommends taking the following actions to help prevent slashed credit limits:

1. work closely with insurers to persuade their customers to share confidential management figures with underwriters who are struggling to write cover on outdated accounts;
2. share your own balance sheet information with insurers to show your own creditworthiness and to reassure your supply chain;
3. identify the need for special contractor wordings in existing or prospective wordings;
4. manufacturers of bespoke products should seriously consider taking out insurance cover for work in progress if they have an extended manufacturing period and check current policy wordings for binding contracts cover;
5. take every opportunity to establish long term contracts with insurers to help control premiums which are likely to increase  with high insolvency levels going forward;
6. reconsider insurers’ debt recovery arrangements, if you have previously opted out;
7. if using discretionary powers within policies to set credit limits, review past trading history carefully and use systems like Aon’s "Trade Link" facility to update credit reference reports.     

 
Ends
For more information contact:
Alexandra Lewis
020 7882 0541
Alexandra.lewis@aon.co.uk
http://aon.mediaroom.com

About Aon
Aon Corporation (NYSE: AOC) is the leading global provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting. Through its 36,000 colleagues worldwide, Aon readily delivers distinctive client value via innovative and effective risk management and workforce productivity solutions. Our industry-leading global resources, technical expertise and industry knowledge are delivered locally through more than 500 offices in more than 120 countries. Aon was named the world’s best broker by Euromoney magazine’s 2008 Insurance Survey. In 2008, Aon ranked highest on the Business Insurance ranking of the world’s largest insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues. Aon also was ranked by A.M. Best as the number one insurance broker based on brokerage revenues in 2007 and 2008, and was voted best insurance intermediary, best reinsurance intermediary, and best employee benefits consulting firm in 2007 and 2008 by the readers of Business Insurance. For more information on Aon, log onto www.aon.com.

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