UK Payment Protection Insurance - Market Update - April 2009

Table of Contents

DATAMONITOR VIEW

• CATALYST
• SUMMARY

ANALYSIS

• Introduction
• The Competition Commission has decided on a forceful package of remedies
  • The Competition Commission has decided to ban sales of PPI at the point-of-sale of the credit product
  • Single-premium policies will also be prohibited
  • Banks will see PLPPI commission revenue drop sharply in 2009

• The remedies are designed to promote shopping around and switching
  • The point-of-sale prohibition is designed to give consumers time to search the market
  • The prohibition on single-premium policies will weaken barriers to switching

• Insurers and distributors should focus on mitigating potential falls in PLPPI penetration rates
  • The biggest challenge facing the industry is mitigating potential falls in PLPPI penetration
  • Executives think outbound telemarketing is unlikely to be an effective method of selling PLPPI
  • Lenders will need to encourage consumers to phone the lender or visit their Internet site the following day
  • Penetration rates of MPPI are expected to see little change
  • CCPPI penetration rates may fall by one quarter

• Distributors will need to compete on price under the new market structure
  • Mass market advertising is unlikely to increase
  • Providers will need to compete on price under the new market structure
  • Aggregators could present opportunities for direct insurance propositions
  • The market may see the introduction of short-term IP products and PPI may be re-branded by some players

• The PPI market will contract significantly in 2009 due to the migration to single-premium PLPPI
  • The move to single premium PLPPI means a significant contraction in GWP in 2009
  • The PPI market is worth £2.8b in 2013 under the optimistic scenario
  • The PPI market is worth £2.2b in 2013 under the pessimistic scenario

APPENDIX

• Definitions
  • Bank of England base rate
  • Balances outstanding
  • CAGR
  • Consumer credit
  • Gross advances
  • First Charge Mortgages
  • Motor finance products available at the point of sale
  • Overdraft
  • Remortgaging
  • Retail finance products available at the point of sale
  • Premium income measures

• Methodology
• Further reading
• Ask the analyst
• Datamonitor consulting
• Disclaimer

TABLES

• Table: Penetration rates of PLPPI, CCPPI and MPPI, 2008-11
• Table: Assumed penetration rates following the point-of-sale prohibition
• Table: Forecast of PPI GWP, neutral scenario, 2009-13
• Table: Assumptions underlying the neutral forecast
• Table: Forecasts of PPI GWP, optimistic scenario, 2009-13 (£m)
• Table: Assumptions underlying the optimistic forecast
• Table: Forecast of PPI GWP, pessimistic scenario, 2009-13
• Table: Assumptions underlying the pessimistic forecast

FIGURES

• Figure: Distributors will have to wait 24 hours to conclude a consumer-initiated PPI policy sale or seven days for a non-consumer initiated sale
• Figure: Current loan protection offering from leading banks
• Figure: The Competition Commission' s remedies include a point-of-sale prohibition and a prohibition on single-premium policies
• Figure: The remedies are designed to encourage provider transparency and consumer search
• Figure: The seven day prohibition for PLPPI starts when the customer receives a signed credit agreement
• Figure: Distributors must focus on mitigating the potential fall in PLPPI penetration rates
• Figure: The prohibition for MPPI starts when the consumer receives a firm mortgage offer
• Figure: Distributors will be able to sell CCPPI during the activation phone call
• Figure: PLPPI GWP drops significantly in 2009 as most major lenders have stopped selling single-premium policies
• Figure: The PPI market grows more strongly in 2011-13 under the optimistic scenario
• Figure: Steep falls in penetration rates in 2011 dampen market growth between 2011 and 2013