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UK Payment Protection Insurance - Market Update - April 2009

Published by: Datamonitor

Published: Apr. 6, 2009 - 9 Pages


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 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

Abstract

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.


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