Table of Contents
- Overview
- Executive Summary
- The creditor insurance market shrank to an estimated £5.4 billion in 2006
- The slowdown in lending and falling penetration levels have fed
through to a contraction in the PPI market
- Consumer credit gross advances declined in both 2005 and 2006
- Most creditor product categories saw reductions in GWP in 2006
- The personal loan PPI market contracted in 2006 as penetration rates
and gross advances on personal loans fell
- The credit card PPI market contracted in 2006 as the number of cards
issued fell
- The FSA is keen to promote better practices in the creditor insurance
market
- The FSA conducted a second round of work on the creditor insurance
market in 2006
- The FSA' s investigation found that many customers were not being
treated fairly despite some progress
- The FSA is considering introducing a number of specific rules
regarding the sales process
- The Competition Commission is conducting an enquiry into the creditor
insurance market
- The OFT referred the creditor insurance market to the competition
commission in February 2007
- The Competition Commission will be conducting extensive consultations
and is due to publish its findings in 2008
- Datamonitor forecasts that the creditor insurance market will reach £6
billion in GWP
- Datamonitor forecasts that the creditor insurance market will reach £6
billion in GWP by 2011
- The outcome of the Competition Commission could have a large impact on
the future size of the creditor insurance market
- Table of Contents
- Table of figures
- Table of tables
- Chapter 1 Market Context
- Introduction
- The creditor insurance market shrank to an estimated £5.4 billion in 2006
- The slowdown in lending and falling penetration levels have fed
through to a contraction in the PPI market
- Personal loan PPI makes up the majority of total creditor market GWP
- Penetration levels are highest for personal loans
- Consumer borrowing is in decline
- Consumer credit gross advances declined in both 2005 and 2006
- Growth in balances outstanding slowed in 2006
- A number of macroeconomic factors have contributed to the slowdown in
borrowing
- Rate increases in 2006 and 2007 have raised the cost of borrowing
- Unemployment started to creep up in 2005, reducing consumer appetite
for more debt but has since recovered late in 2006
- Average house prices continued to increase in 2006; however it had a
muted effect on overall consumer credit
- Chapter 2 The PPI market by product
- Introduction
- The personal loan PPI market contracted in 2006 as penetration rates and
gross advances on personal loans fell
- Personal loan PPI income fell by 8.3 per cent in 2006
- Gross advances on personal loans contracted in 2006
- The credit card PPI market contracted in 2006 as the number of cards
issued fell
- Gross advances on credit cards fell in 2006
- Credit card ownership fell in 2006 which served as a constraint on
credit card line PPI GWP
- The average balance outstanding grew marginally in 2006
- The MPPI sector grew in 2006 as mortgage gross advances rose
significantly
- MPPI premiums grew to £924 million in 2006
- Mortgage gross advances grew by 19.6 per cent in 2006 driven by all
three product categories
- MPPI penetration on new mortgages fell in 2006
- The number of housing repossessions rose in 2006
- MPPI claims frequency remained steady in 2006
- The average length of MPPI claims increased in 2006
- The motor finance PPI market contracted in 2006 due to reductions in new
and used car sales and FSA scrutiny
- Motor finance PPI premium income fell by 4.4 cent in 2006
- New and used car registrations fell in 2006, depressing motor finance
- Gross motor finance advances continued to decrease in 2006
- While hire purchase gross advances have fallen for new car finance,
leasing and PCPs showed increases
- Gross advances for used car finance fell in 2006 which was largely
driven by hire purchase
- Dealers have been the target of recent FSA enforcement activity
- Retail finance PPI is a niche and declining sector of the creditor market
- The retail finance PPI sector was worth approximately £175 million in
2006, representing a drop of over 9 per cent
- Gross advances for retail finance fell by 9.3 per cent in 2006 as
consumers shifted away from this form of lending
- Retail finance balances outstanding increased by 1 per cent in 2006
- Retail finance will be further depressed by the Competition
Commission' s investigation and remedies
- Chapter 3 Regulation
- Introduction
- The FSA' s thematic review of the PPI market in 2005 found several issues
with firms' conduct
- The FSA conducted its thematic review of the creditor insurance market
in 2005
- The FSA found weaknesses in firms' systems and controls related to the
selling of PPI policies
- The FSA conducted a second round of work on the creditor insurance
market in 2006
- Investigations in this round involved visits to 40 firms to check for
increased compliance
- The FSA' s investigation found that many customers were not being
treated fairly despite some progress
- The second half of 2006 saw the FSA back up its investigations with
several high profile fines
- The FSA is to carry out a third round of work on the PPI sector in 2007
- The FSA plans to visit over 100 firms in the course of its 2007
investigations
- The FSA is considering introducing a number of specific rules
regarding the sales process
- The Competition Commission is conducting an enquiry into the creditor
insurance market
- The OFT referred the creditor insurance market to the competition
commission in February 2007
- The Competition Commission will be conducting extensive consultations
and is due to publish its findings in 2008
- The Competition Commission' s investigation is underway with visits
and hearings with interested parties
- The Competition Commission is planning to publish the results of its
creditor insurance investigations in 2008
- CHAPTER 4 Customer Focus
- Introduction
- Banks and building societies dominate the distribution of MPPI
- Over 70 per cent of MPPI is distributed by lenders but intermediaries
have made some gains
- Younger consumers and consumers with relatively lower personal income
are most likely to take out PPI on a personal loan
- The majority of consumers who have taken out PPI on a personal loan
are 25 to 44 years old
- Lower income consumers are far more likely to purchase PPI on a loan
- Many players are making product changes and improving the claims
experience so as to attract more customers
- Many PPI providers are changing their products to make them more
appealing to consumers
- Some PPI providers are aiming to improve the claims experience for the
consumer
- Chapter 5 Competitive Dynamics
- Introduction
- Many players saw creditor insurance premium income fall in 2006
- The slowdown in consumer borrowing and players' internal focus has led
to many seeing declines in premium income
- Norwich Union underwrote £1.1 billion in creditor insurance GWP in
2006 and signed a significant new partnership with Paymentshield and is
set to acquire Hamilton
- HBOS sold £948 million in GWP of creditor insurance in 2006; however
this was a decline on 2005 figures due to lower consumer borrowing
- Pinnacle saw its creditor insurance GWP fall by 6.4 per cent to £221
million in 2006
- Assurant Solutions announced a number of deals with partners despite
the uncertain regulatory environment
- A number of players are extending their presence in the creditor
insurance sector
- Groupama has become the underwriter for FirstAssist' s PPI offering
- Plus One launched a new creditor product in June 2006
- Only Insurance is planning a creditor product roll out in 2007
- Chapter 6 Future Decoded
- Introduction
- Consumer credit gross advances and mortgage gross advances are set to
grow slowly between 2006 and 2011
- Consumer credit gross advances will grow at 2 per cent per annum
between 2006 and 2011
- In terms of individual product lines, virtually all products will
suffer in 2007 but will pick up thereafter
- Gross mortgage advances will grow slowly between 2006 and 2011
- Datamonitor forecasts that the creditor insurance market will reach £6
billion in GWP
- Datamonitor forecasts that the creditor insurance market will reach £6
billion in GWP by 2011
- The outcome of the Competition Commission could have a large impact on
the future size of the creditor insurance market
- APPENDIX
- Supplementary data
- Competitive Dynamics
- Consumer Credit Forecasting Model
- Further reading
- Ask the analyst
- Datamonitor consulting
- Disclaimer
- List of Tables
- Table 1: Estimated creditor insurance GWP by product, 2003-6
- Table 2: Creditor insurance GWP share by product, 2006
- Table 3: Estimated levels of product penetration by sector, 2006
- Table 4: Consumer credit gross advances by product, 2002-6
- Table 5: Consumer credit balances outstanding by product, 2002-6
- Table 6: UK unemployment, seasonally adjusted claimant count, 2001-6
- Table 7: Unsecured personal loan gross advances, 2002-2006
- Table 8: Gross advances on credit cards, 2002-6
- Table 9: Number of credit cards in the UK, 2002-6
- Table 10: Average balance outstanding on a UK credit card, 2002-6
- Table 11: Mortgage gross advances by purpose, 2002-6
- Table 12: Penetration of MPPI policies, 2001-6
- Table 13: Penetration rate of new MPPI policies, 2001-6
- Table 14: UK housing repossessions, 2001-6
- Table 15: MPPI claims data, 2002-6
- Table 16: Registrations of new and used cars, 2002-6
- Table 17: New and used car motor finance gross advances, 2002-6
- Table 18: Gross advances for new car finance by product, 2002-6
- Table 19: Gross advances for used car finance by product, 2002-6
- Table 20: Retail finance gross advances by product line, 2002-6
- Table 21: Retail finance balances outstanding by product line, 2002-6
- Table 22: MPPI distribution by channel, 2002-6
- Table 23: Personal loan consumers holding payment protection
insurance, by age band, 2006
- Table 24: Personal loan consumers holding payment protection
insurance, by income, 2006
- Table 25: Creditor insurance GWP for selected competitors, 2005-6
- Table 26: Forecast consumer credit gross advances by product, 2006-11f
- Table 27: Forecast mortgage gross advances by purpose, 2006-2011f
- Table 28: Forecast creditor insurance GWP by product, 2006-11f
- Table 29: Quarterly Nationwide House Price Index, 2002-7
- Table 30: Sources of competitor premium income figures
- List of Figures
- Figure 1: The PPI market has contracted since 2004 due to declining
penetration levels and lower lending volumes
- Figure 2: PPI from personal loans continued to form the bulk of the
creditor insurance market in 2006
- Figure 3: Penetration of PPI is highest on personal loans
- Figure 4: Despite strong economic conditions, consumer lending
contracted in 2006
- Figure 5: The rate of growth for balances outstanding slowed in 2006
- Figure 6: Interest rates increased in 2006 and 2007 after reaching
historic lows in 2003
- Figure 7: Unemployment began to rise in 2005 and 2006
- Figure 8: 2006 saw the housing market recover after stagnating in 2005
- Figure 9: The number of credit cards in issue declined in 2006
- Figure 10: The average credit card balance increased in 2006
- Figure 11: Gross mortgage advances grew in 2006 largely due to lending
for house purchases
- Figure 12: Since 2003, MPPI penetration levels on new business have
declined
- Figure 13: The number of housing repossessions rose in H1 and H2 2006
- Figure 14: Claims frequencies on MPPI are very low, at just 4.4 per
cent in 2006
- Figure 15: The average length of an MPPI claim increased in 2006
- Figure 16: Registrations of both new and used cars fell in 2006
- Figure 17: Gross advances for new and used cars fell in 2006
- Figure 18: Hire purchase arrangements dominate motor finance but have
declined since 2003
- Figure 19: Used car finance is still heavily reliant on hire
purchases, even with a decline in 2006
- Figure 20: Gross advances fell across all retail finance products in
2006
- Figure 21: Consumers continue to shift their debts away from retail
finance products
- Figure 22: The amount of MPPI distributed through intermediaries such
as brokers has grown steadily while direct insurers have struggled
- Figure 23: Penetration of loan PPI is highest among 25-34 year olds
- Figure 24: Uptake of PPI was highest amongst loan holder in the lower
income brackets
- Figure 25: Consumer credit gross advances will rise slowly between
2007 and 2011
- Figure 26: Forecast mortgage gross advances by purpose, 2006-2011f
- Figure 27: Forecast creditor insurance GWP by product, 2006-11f
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