Creditor Insurance - UK - July 2009

Abstract

About this report

The PPI industry has been in decline since 2006, as a result of the relentless attack it has been under by the media. Providers are accused of selling over-priced policies in order to subsidise low interest rates on loans and credit cards, which it is argued do not represent good value for customers. In addition, high-pressure sales tactics and widespread mis-selling of policies has compounded the issue, with the FSA imposing increasingly hefty fines on providers. The PPI industry is expected to undergo widespread changes over the next couple of years, with products and sales processes being redesigned and the likelihood of new types of protection products emerging as a result.

The creditor insurance market has been plagued by problems over the last few years, with media and regulatory bodies accusing the industry of profiteering and failing to treat customers fairly. In February 2007, the Office of Fair Trading (OFT) referred the supply of payment protection insurance (PPI) to UK consumers to the Competition Commission (CC), which subsequently undertook a detailed investigation of the industry and the claims made against it. The CC published its final report in January 2009 in which it set out a number of new rules that providers must follow. These are likely to have a devastating effect on the industry, in particular the point-of-sale ban on PPI, due to come into effect in October 2010.

This report looks at the internal and external factors affecting the creditor insurance market– the introduction of the new CC rules as well as the effect of the recession on the market. The size of the market is examined in detail by individual sectors, including a forecast of the industry in the post-CC era. We also look at distribution and – with the vast majority of policies being sold via lenders – which channels are used to arrange them. The key distributors and underwriters in the industry are examined, with company profiles as well as estimated market shares presented. Finally, we look at how consumers feel about PPI, with the results from a survey specifically commissioned for this report.

Key issues

• The new CC rules are likely to have a devastating impact on the PPI industry, resulting in substantial changes to product design and the way policies are sold.
• Since most PPI is sold alongside credit products, the fall in consumer lending has contributed to the decline in sales.
• The swathe of negative press on PPI has severely damaged the industry’s reputation, leading to a decline in penetration rates as more and more consumers refuse policies.
• Rising unemployment has boosted demand for standalone PPI, despite the fact that some have suggested that the recession has prompted some consumers to cut back on insurance.
• The recession has led to a dramatic rise in PPI unemployment claims, leading some providers of standalone policies to withdraw from the market.
• Consumer confusion is rife when it comes to PPI, having a detrimental effect on sales.