2024 has seen businesses operating in a continued difficult trading environment against a backdrop of ongoing geopolitical uncertainty, high costs and cautious consumer spending. Many businesses, including some notable sector giants and high street names, have succumbed to these challenges this year.
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There are potentially early signs of stabilisation in the UK economy, with the inflation rate falling to the Bank of England’s target of 2% in May1.

In August, interest rates saw their first decrease in 4 years, falling to 5%, and a further cut of 0.25% was announced by the Bank of England on 7th November, setting the current rate to 4.75%.

The recent Autumn Statement was set out by Chancellor of the Exchequer; Rachel Reeves as a budget that will 'permanently increase the supply of capacity of the economy, boosting long-term growth'. The OBR are forecasting low, yet steady, growth for the UK economy over the next few years, showing that whilst we may see signs of improvements this will be incremental rather than a sharp turn-round.

Insolvencies & Companies in Distress

Shockwaves from difficult trading conditions during the COVID-19 pandemic are still being felt through supply chains as well as changing consumer habits, resulting in significant levels of companies entering insolvency in 2024 or facing future distress.

Insolvencies year to date have shown a slight 0.2% increase on the same period in 2023, with 18,409 companies ceasing trading2.

Month 2023 2024 Difference
January 1745 1782 +2.1% (37)
February 1959 2184 +10.3% (225)
March 2199 1833 -16.6% (366)
April 1826 2177 +19.2% (351)
May 2553 2014 -21.1% (539)
June 2039 2388 +17.1% (349)
July 1834 2115 +15.3% (281)
August 2271 1943 -14.4% (328)
September 1943 1973 +1.5% (30)
Total 18,369 18,409 +0.21% (40)

Information relating to the revenue, number of employees and trading location of the company is generally not held by the Insolvency Service, however we are seeing multi-million turnover companies featuring on these lists and the domino effect of how this has impacted their trading partners is expected to materialise over the coming months.

According to the latest Begbies Traynor Red Flag Alert, the number of UK companies in "significant" financial distress jumped by nearly 10 per cent in the second quarter of 2024 to 601,950 businesses3. This was heavily weighted by an increase within the Travel & Tourism (+20.1%), Hotels & Accommodation (+16.4%) and Bars & Restaurants (+12.2%) sectors, reflecting the ongoing low levels of consumer confidence and spending with many households having to remain vigilant with their own cost of living increases. Serious concerns remain over the state of the Construction, Real Estate and Support Services sectors with them continuing to feature as the top 3 again in Q2.

Top 10 Sector Ranking – Significant Financial Distress
1 Construction 89,824
2 Support Services 89,763
3 Real Estate & Property Services 65,919
4 Professional Services 50,683
5 General Retailers 42,992
6 Health & Education 39,933
7 Telecommunications & Information Technology 39,659
8 Media 24,831
9 Food & Drug Retailers 17,443
10 Financial Services 16,977

Significant Distress by Region
1 London 169,442
2 South East 102,288
3 Midlands 75,144
4 North West 63,454
5 South West 42,111
6 Yorkshire 41,858
7 Scotland 40,435
8 East of England 38,594
9 Wales 17,463
10 North East 11,329
11 Northern Ireland 9,756
12 Misc 76

Sector updates

As challenging economic conditions prevail, business insolvencies remain high across many sectors. We focus on four key industries below to provide a deeper understanding of the current landscape and the challenges many are facing.

Insurance market update

Market and appetite

Currently, the risk appetite in the credit insurance and surety markets remains robust among underwriters. The reinsurance market also continues to exhibit a strong appetite for credit risk insurance, which aids in managing risk and absorbing losses. However, any significant increase in business failures could undoubtedly lead to a reduction in insurer risk appetite. We are already seeing the market present new challenges and opportunities for growth in the construction and retail sectors. Additionally, increases in general insurance premiums can exert pressure on discretionary insurance purchases, including credit insurance.

Premium rates

Premium rates have experienced a slight increase, but not to the extent we anticipated, even with insurers reporting significant rises in their risk exposure. The pricing in the credit insurance market remains highly competitive, presenting a favourable environment for businesses seeking coverage.

Claims

The 30-year high insolvency figures are rapidly translating into insurance claims. Businesses are facing increased costs due to labour shortages, high energy costs, increased taxation and employee costs. Many companies are operating on reduced margins and their ability to absorb the impact of these factors has left may in a perilous state. However, whilst claims incidence is increasing, insurer claims ratios (the % of claims paid in relation to premiums earned) remain within forecasts and are not increasing enough to raise undue alarm within the standard underwriting business model. But as we have seen in the past, economic conditions can deteriorate very quickly, triggered by large unforeseen events and we are still yet to see the true impact of some of the largest insolvencies of 2023.

What are we seeing from businesses?

Many businesses are still experiencing difficult trading conditions, seeing the impact of high energy costs, supply chain issues, labour shortages and labour costs. It will still be difficult for them to operate against a backdrop of continued geopolitical uncertainty: the ongoing conflicts in Ukraine and Gaza, further exacerbated by the new government in the UK and recent election in the USA.

We are seeing the effects of insolvencies across the board. If a customer goes into administration, businesses are being left with unpaid invoices. If a supplier goes bust, a business can be faced with a dramatic supply chain cost increase. Every change reverberates along the chain, and we have seen recent examples where they have cited their customer failing as a consequence of having a bad debt or experienced a major insolvency.

Protecting your business

Trade credit insurance can be an effective solution to help protect your business against a debt from customers failing to pay for goods or services provided to them on a credit basis, which often happens in an insolvency situation. It can also be used tactically to facilitate business growth into new markets and with new customers and suppliers.

Gallagher's Trade Credit team can assist you in identifying a suitable credit insurance solution for your business. Our versatile range of solutions can be customised to meet your specific needs, whether you require comprehensive coverage for your entire turnover, catastrophe cover, or more targeted options such as key accounts cover, specific/single risk cover, or covering a single contract.

Author Information

Tim Chance

Tim Chance

Managing Director, Trade Credit

Sources

1"Inflation and the 2% target," Bank of England, accessed 18 November 2024.

2"Company Insolvency Statistics, September 2024," gov.uk, 18 October 2024.

3"Latest red flag alert report for Q2 2024," London Stock Exchange, 22 July 2024.

4"Monthly Insolvency Statistics, September 2024," gov.uk, 16 February 2024.

5"Construction Output Fell by 0.1% in Quarter 2 2024," Construction Leadership Council, 15 August 2024.

6Yerushalmy, Jonathan and Chris Michael et al. "Baltimore bridge collapse: US braces for supply chain disruption," The Guardian, 22 March 2024.

7"UK Manufacturing PMI at 26-month high in August, as recoveries in output, new orders and employment continue," S&P Global UK Manufacturing PMI®, 2 September 2024. PDF File.

8"United Kingdom Manufacturing PMI," Trading Economics, accessed 18 November 2024.

9"Retail sales, Great Britain: September 2024," Office for National Statistics, 18 October 2024.

10"UK consumer confidence tumbles in anticipation of 'painful' Budget," Financial Times, accessed 18 November 2024. Gated Article.

11"Euros and sunshine heat up drinks sales 14%," CGA, 26 July 2024.

12Lloyd, Gary. "Business rates relief slashed but system will be overhauled in 2026," Morning Advertiser, 30 October 2024.

Disclaimer

Gallagher Business Risk Index - Results taken from a survey of 1,000 business leaders conducted by Opinium on behalf of Gallagher in July 2024, respondents were asked to select the current top risks to their organisation.

The sole purpose of this document is to provide guidance on the issues covered. This document is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.

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