Stockpiling and your insurance

July 11, 2019

How customs between the UK and EU will be affected, as we all know, depends on the ongoing Brexit negotiations.

Currently, the UK is part of the customs union with the EU. If the deal is agreed, the UK will remain in this union during a ‘transition period’ between Brexit and when a future trade deal between the UK and EU is made.

Being part of the customs union reduces administrative and financial trade barriers, such as customs checks and charges, and boosts economic co-operation.

However, if there is a no-deal vote, meaning MPs reject the prime minister’s plan, the UK will automatically leave the union.

Under these circumstances, UK businesses will still have the right to trade with EU countries, however, they will face tariffs and other on-tariff barriers, such as rules of origin checks – which allow governments to determine where goods originate from – and could ultimately drive up the cost of certain commodities.

The threat of an increase in the costs of goods has seen many businesses stockpiling extra resources as a contingency plan in the event of a no-deal result.

Earlier this year Bombardier in Belfast announced it was to begin stockpiling parts in order to mitigate the impact of a no-deal Brexit, potentially costing the company up to £30 million.

In the event that an organisation, no matter the size, makes the decision to store extra stock or expand its business, it is important that it communicates this with its insurance broker so that they can alert the insurer and insure the stock to the correct value.

In the event of a disaster, or interruption to business operations resulting in a claim, and it is found that a company is housing more stock than originally declared, it will be underinsured and the claims award they receive will be affected.

Businesses should not wait until the date of renewal to tell insurers about increased levels of stock, as it is possible for an event to occur in the interim period. Ensuring there is appropriate insurance in place, that covers the size and volume of goods held by a business, it should be treated as a matter of urgency.

If the worst-case scenario occurs in the form of a no-deal Brexit, a business must contact its broker at the earliest convenience – to consider additional cover or to make adjustments to existing policies – so that appropriate protection is in place, and the longevity of the business ensured.

Suppliers are at risk of having insufficient trade credit insurance as some British firms, such as retailers and manufacturers, stockpile goods amid mounting concerns of a no-deal Brexit, according to Marsh, a global leader in insurance broking and innovative risk management solutions.

Traditionally, buyers purchase goods on credit terms, sell these goods on to the consumer, and use some of the revenue to pay the supplier before the terms of payment expire. By stockpiling goods, buyers may be unable to generate enough revenue to cover the credit, which greatly increases the risk of non-payment. If suppliers increase the quantity of goods sold to buyers in the UK, they should check they have adequate levels of trade credit insurance to protect them against any payment default.

Concerns of a no-deal Brexit have led to industry groups to speculate on the requirements of stockpiling vital goods, such as non-perishable food produce, medical supplies, and vaccinations. Approximately half of all of the UK’s food supplies alone are imported, much of that coming from the European Union. Marsh notes that some firms are ramping up their inventories in preparation for any delays caused by potential trade restrictions.

Tim Smith, Global Trade Credit Practice Leader, Marsh, commented: “Stockpiling could reduce cash flow and tie up liquid funds that could otherwise be reinvested into growth, research and development. It also creates further financial burden by potentially forcing firms to increase their spending on storage, in order to house their growing inventories.

“Credit insurance is a proactive policy which not only pays out in the event of non-payment, but also allows suppliers to make informed decisions about their customers by drawing on the market and economic expertise that credit insurers hold.”

Britons have spent over £4.6 billion stockpiling household goods in preparation for a hard Brexit, according to new research.

A survey carried out by finance provider Premium Credit shows that 17% of the country has started hoarding food, drink and medicine – with about 2.4 million people having spent more than £500 stockpiling.

A further 6.1 million have spent up to £500 while one in five, or 19%, have spent over £1,000 on hoarding.

Brexit-related stockpiling is also hitting cashflow, according to Premium Credit, which is increasing pressure on businesses and households to rely more on credit to make purchases.

Premium Credit found that firms and individuals are bolstering reserves in the event of Britain crashing out of the EU without a deal.

One in five surveyed said their employers are stockpiling inventory due to concerns about a “bad Brexit” and 4% expect their employers to start building up stock in the next few weeks.

Premium Credit said stockpiling means people and firms will burn through cash faster, and may start to rely more on credit to buy goods.

The research, which was carried out more than 1,000 people, found that stockpiling was affecting firms’ expansion, recruitment and advertising plans – while 64% of those surveyed claimed to have lost out on pay rises because of it.

Adam Morghem, strategy and marketing director at Premium Credit, said: “There are a lot of concerns regarding a bad Brexit, and our research reveals the extent to which both businesses and individuals are stockpiling as a result of this. The implications are much wider than many may suspect.

“From creating cashflow problems, to under insurance of stockpiled goods to curbing a business’ plans for expansion. Our findings also suggest that many people may also be missing out on promotions and pay rises as a result of Brexit related stockpiling.

“With cashflow being adversely affected, it puts pressure on businesses and individuals to rely more on credit to buy the goods and services they need.”

The research comes after Morrisons said customers have begun to stockpile toilet roll and medicine, and that the supermarket chain, along with Tesco and Marks & Spencer, has also increased inventory of certain products.

Homeware retailer Dunelm, Pets At Home and drug makers Sanofi and Novartis also revealed plans to shore up supplies ahead of Brexit.