Abstract
Overview
Introduction
The report provides a detailed analysis of the current size and composition of
the UK creditor insurance market at a time of great upheaval. In addition to a
discussion of regulatory issues, it provides PPI customer and competitor
information that allow for a more complete understanding of the market. The
report also provides a forecast of creditor insurance GWP up until 2011.
Scope
- Creditor insurance market sizing, product penetration and competitor
premium income data
- In depth analysis of the underlying consumer credit market including
sizing for personal loans, credit cards, mortgages, retail and motor finance
- A discussion of the FSA' s work on the creditor market and the current
Competition Commission investigation
Report Highlights
Based on primary research with interviewees as well as secondary data,
Datamonitor has estimated the penetration rate of PPI on each main lending
product. Datamonitor estimates that the penetration rate of PPI is highest on
personal loans at 41 per cent followed by 26 per cent for mortgages and 19 per
cent for retail finance.
The most negative recommendation for the market would be for the full
de-linking of the product from the underlying credit purchase which could have
a significant negative impact on sales of creditor insurance.
Gross advances in the UK mortgage market are forecast to reach £357.2 billion
in 2007 and increase steadily thereafter to stand at £395.1 billion in 2011.
Reasons to Purchase
- Benchmark your creditor insurance premium income against your competitors
- Plan your future strategy using Datamonitor' s forecast of the future
growth of the creditor insurance market
- Understand the work that the FSA and Competition Commission are carrying
out on the market
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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