Insurance giant QBE has made a dramatic U-turn on its sudden decision to withdraw from the trade credit insurance market following major pushback from the construction industry and the federal opposition.
On Saturday QBE told customers it would no longer provide trade credit insurance for businesses with a limit of less than $US250,000 ($410,000), in an effort to protect itself from the fallout from the coronavirus crisis.
That meant suppliers selling on credit products worth up to $410,000 would not be insured in the event that some customers failed to make the payment. Many suppliers cannot afford to sell on credit without trade credit insurance.
But following a flood of complaints and media scrutiny, including in The Australian Financial Review, and amid warnings that the move could bring much of the construction industry to a screeching halt, QBE said it would reinstate around 7000 of the 9000 blacklisted companies. However they would only be covered for 50 per cent of their original limit.
A QBE spokesman said those 7000 businesses included “key businesses in the construction industry whose feedback we have heard and responded to”.
Debra Bourke, the owner of the Macarthur Frames and Truss factory in western Sydney that supplies the building industry, many of whose customers were blacklisted by QBE, said the U-turn did not go far enough.
Ms Bourke learned of QBE’s original decision on Monday morning from her insurance broker.
“I went into a panic situation,” she told the Financial Review before QBE announced its backtrack. “Without that cover I would have no choice but to shut up shop.”
She said if building suppliers were forced into hibernation, a big part of the construction industry could be forced to shut down.
“If we don’t supply frames and truss to sites, there are no bricklayers, carpenters, plumbers, nothing. It all stops. And then you have millions of people lining up for Centrelink,” she said.
She tried to negotiate with QBE for a solution, without success. So she wrote to her local MP, who forwarded her complaint to shadow financial services minister Matt Thistlethwaite. Mr Thistlethwaite called QBE, and after some wrangling, the insurer was persuaded to make some concessions for Ms Bourke
She said she was concerned other suppliers to the building industry wouldn’t get the same special treatment.
“We are one of those industries that is able to function [during the coronavirus crisis] and not put pressure on the government. But they do this to us and we will just be another tragic story of an industry forced to shut down.”
Trade credit insurance policies give the supplier payout limits for each of its customers. If a customer limit is $1 million, the policy will cover the supplier for unpaid invoices of up to $1 million for that customer.
At the weekend QBE withdrew cover on a large number of businesses with a limit of $US250,000 ($410,000), and massively reduced cover for all higher limits. The decision did not apply to essential services such as food, pharmaceuticals, agriculture and telecommunications. Construction was not considered essential.
Ms Bourke said while she had never had to make a claim, she would not supply on credit without insurance.
A Brisbane-based supplier of plasterboard and other building materials to the construction industry, which asked not to be identified, said if QBE followed through with its plan, then it would have to stop supplying those blacklisted companies.
“Do I want to offer $300,000 credit without any guarantee? Not in the current climate,” a spokesman for the supplier told the Financial Review.
He said the loss of business would likely knock 25 per cent off revenue and force the company to lay off employees, adding his customers would be worse off still, and some might fold.
“If we withdraw cover on them, I think there is a chance they will go broke.”
Also speaking before QBE’s late announcement, Graham Wolfe, managing director of the Housing Industry Association, said it was difficult to quantify the impact of QBE’s decision on the construction industry, but it would “have a significant impact on thousands of businesses in the building industry
“There are some businesses out there whose supplier now has given them zero credit. They are either going to have to find the cash to pay upfront, or they won’t order.
“A lot of our members are citing years and years of loyalty and partnership, and this. It comes as a tremendous shock to do it across the book.” He said the consequences for the industry would become apparent within a couple of weeks.
Minister for Housing and Assistant Treasurer Michael Sukkar did not address the specific issue, but said the government would “continue to work with insurance companies who have a responsibility in this Team Australia moment to help their customers get to the other side”. The Financial Review understands QBE has asked the government for help.
Matt Thistlethwaite, Labor’s shadow financial services minister, had earlier urged QBE to reconsider its decision.
“Many SMEs may not survive, and more workers will end up needlessly entering the unemployment queue. We’ve asked QBE to recondsider their decision at least until insurance contracts are up for renewal. I can understand if they’re talking about new customers, but to do it it mid contract and leave a lot of these business without cover is pretty poor form,” he said.