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UK Payment Protection Insurance - Market Update - April 2009

Datamonitor
April 6, 2009
9 Pages - SKU: DFMN2217569

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Countries covered: United Kingdom

Introduction

This brief analyses the Competition Commission's remedies for the PPI market and discusses the effects on penetration rates and the size and structure of the market. Drawing on the results of interviews with industry executives, the brief also looks at the potential for increased advertising, direct insurance propositions and the introduction of more short-term IP products to the market.

Scope

Insight into the effect of the Competition Commission's remedies on the penetration rates of PLPPI, FMPPI and CCPPI.
Forecasts of the size of the PPI market between 2009 and 2013 under an optimistic, neutral and pessimistic scenario.
Executives views on advertising, the potential of outbound telemarketing and the emergence of direct insurance propositions.

Highlights

A strategy that could be more successful in mitigating a potential fall in penetration rates is to encourage consumers to phone the lender or visit the lender's website on the day following the credit sale as the distributor or intermediary arranging the credit can sell PPI over the Internet or telephone after 24 hours.

A number of executives suggested that penetration rates of PLPPI could halve in 2011, following the point-of-sale prohibition. Therefore, Datamonitor would suggest that this potential fall in PLPPI penetration rates is the key threat to distributors' and insurers' incomes in 2011 and is the area where it is most important to find solutions.

Reasons to Purchase

Understand the remedies that the Competition Commission will impose on the market and how they are intended to address the competition issues.
Assess the future size of the PPI market by product line under an optimistic, neutral and pessimistic scenario for future penetration rates.
Understand how the market may change in terms of advertising; direct insurance propositions and the products on offer.

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 has contracted between 2006 and 2008 driven by falls in PLPPI, CCPPI and SMPPI GWP; The move to single premium PLPPI leads to a large GWP reduction in 2009; Premium income from PPI on first charge mortgages and credit cards is expected to see little change; The second charge mortgage and motor loan PPI sectors are expected to play a much smaller role in the market; 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: Methodology; Further reading; Ask the analyst; Datamonitor consulting; Disclaimer
List of Tables: Table 1: Penetration rates of PLPPI, CCPPI and MPPI, 2008-11; Table 2: Assumed penetration rates following the point-of-sale prohibition; Table 3: Forecast of PPI GWP, neutral scenario, 2009-13; Table 4: Assumptions underlying the neutral forecast; Table 5: Forecasts of PPI GWP, optimistic scenario, 2009-13 (£m); Table 6: Assumptions underlying the optimistic forecast; Table 7: Forecast of PPI GWP, pessimistic scenario, 2009-13; Table 8: Assumptions underlying the pessimistic forecast
List of Figures: Figure 1: 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 2: Current loan protection offering from leading banks; Figure 3: The Competition Commission's remedies include a point-of-sale prohibition and a prohibition on single-premium policies; Figure 4: The remedies are designed to encourage provider transparency and consumer search; Figure 5: The seven day prohibition for PLPPI starts when the customer receives a signed credit agreement; Figure 6: Distributors must focus on mitigating the potential fall in PLPPI penetration rates; Figure 7: The prohibition for MPPI starts when the consumer receives a firm mortgage offer; Figure 8: Distributors will be able to sell CCPPI during the activation phone call; Figure 9: PLPPI GWP drops significantly in 2009 as most major lenders have stopped selling single-premium policies; Figure 10: The PPI market grows more strongly in 2011-13 under the optimistic scenario; Figure 11: Steep falls in penetration rates in 2011 dampen market growth between 2011 and 2013

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UK Payment Protection Insurance - Market Update - April 2009

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