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Creditor Insurance - UK - July 2009

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.

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Table of contents

  1. Issues in the Market

      • Key issues
        • Abbreviations
        • Future Opportunities

          • Switching policies… how on earth?
            • Getting the aggregators involved
              • Moving towards standalone non-credit-related PPI
                • Reducing consumer confusion
                • Market in Brief

                  • The market has contracted sharply since 2005…
                    • Figure 1: Estimated GWP in the creditor insurance market, 2003-09
                  • …with MPPI and PLPPI faring particularly badly in 2008
                    • Figure 2: Estimated GWP in the creditor insurance market, by sector, 2003-08
                  • The new CC rules are set to reshape the industry
                    • Consumer lending has fallen in the credit crunch
                      • IP and CIC may be considered alternatives to PPI
                        • The big banks dominate both distribution and underwriting
                          • Figure 3: Estimated market share of the top 12 distributors of creditor insurance, by GWP, 2008
                        • Providers spend little on advertising PPI
                          • Policies are sold direct at the same time as a credit product
                            • Figure 4: Sales of new PPI policies, by distribution channel (based on number of policies sold), 2007
                          • Two thirds of consumers do not have any PPI
                            • Figure 5: PPI ownership, April 2009
                          • Penetration is highest for MPPI
                            • Figure 6: Penetration of PPI products into the target market, April 2009
                        • Internal Market Environment

                          • Key points
                            • A market heavily under fire
                              • The conclusion of the Competition Commission’s PPI investigation
                                • Key implications of the review
                                  • The end of single-premium PPI
                                    • Likely outcomes following the report
                                      • The FSA scrutinises variation clauses in MPPI and short-term IP…
                                        • …which will have a big impact on the market if it goes through
                                          • Fines levied against providers have increased…
                                            • Figure 7: Breakdown of fines levied against PPI providers in 2008
                                          • … as has the number of complaints made to the FOS
                                            • Consumer confusion over PPI
                                              • FSA includes PPI on its comparative tables
                                                • PPI unemployment claims are on the rise
                                                  • Figure 8: Number of PPI unemployment claims, Sep 2007-Feb 2008 and Sep 2008-Feb 2009
                                                • Enforcement Restriction Orders may impact the market
                                                • Broader Market Environment

                                                  • Key points
                                                    • Lending to consumers has slowed significantly
                                                      • Figure 9: Total lending to individuals, amounts outstanding (seasonally adjusted), 2000 Q1-2008 Q1
                                                    • Total household debt has risen alarmingly
                                                      • Figure 10: Amounts outstanding of personal sector debt (not seasonally adjusted), and as a proportion of total PDI, 2000-08
                                                    • Gross lending fell substantially in 2008
                                                      • Figure 11: Total gross lending to individuals (not seasonally adjusted), 2000-08
                                                    • Consumer confidence stabilises
                                                      • Figure 12: Monthly UK Consumer Confidence Index, Jan 2000-Apr 2009
                                                    • Unemployment is a major cause for concern
                                                      • Figure 13: UK unemployment levels, 1994-2008
                                                    • Health concerns are also an issue
                                                    • Competitive Context

                                                      • Key points
                                                        • Income protection is the main alternative
                                                          • Figure 14: Sales of new individual IP policies, by volume and value, 2004-08
                                                        • So too is critical illness cover
                                                          • Figure 15: Sales of new individual stand-alone CIC, by volume and value, 2004-08
                                                      • SWOT Analysis

                                                          • Figure 16: Creditor insurance market SWOT analysis, 2009
                                                      • Who’s Innovating?

                                                        • Key points
                                                          • A market that lacks innovation
                                                            • The switch to regular-premium PPI on loans…
                                                              • … or perhaps a new type of product altogether
                                                                • Changes in the standalone non-credit-related PPI market
                                                                  • Pioneer Friendly launches a new short-term IP policy
                                                                    • Several new MPPI policies launched
                                                                    • Market Size and Forecast

                                                                      • Key points
                                                                        • The PPI market has been in decline since 2006
                                                                          • Figure 17: Estimated GWP in the creditor insurance market, 2003-09
                                                                        • PLPPI accounts for about half of the overall market
                                                                          • Figure 18: Estimated GWP in the creditor insurance market, by sector, 2003-08
                                                                        • MPPI and PLPPI were badly hit in 2008
                                                                          • Figure 19: Estimated annual GWP growth in the creditor insurance market, by sector, 2003-08
                                                                        • The point-of-sale ban posses a big threat
                                                                          • Market forecast
                                                                            • Ban on single-premium to cause the market to shrink by 26% in 2009
                                                                              • Figure 20: Estimated size of the creditor insurance market, by GWP, 2004-14
                                                                            • The post-CC era of creditor insurance
                                                                              • Factors used in the forecast
                                                                              • Market Segmentation

                                                                                • Key points
                                                                                  • The size of MPPI market has declined since 2007
                                                                                    • Figure 21: Estimated size of the MPPI market*, by GWP, 2003-08
                                                                                  • Sales of new MPPI policies have fallen…
                                                                                    • Figure 22: Total number of new MPPI policies sold or provided free, and as a proportion of gross new mortgage advances, 2003 H1-2008 H1
                                                                                  • …as have the total number of MPPI policies in force
                                                                                    • Figure 23: Total number of MPPI policies in force, and as a proportion of all outstanding mortgages, 2003 H1-2008 H1
                                                                                  • ASU is the most popular type of policy
                                                                                    • Figure 24: Breakdown of cover provided on new MPPI policies, 2004 H1-2008 H1
                                                                                  • PLPPI will be badly hit by the ban on single-premium policies
                                                                                    • Figure 25: Estimated size of the PLPPI market, by GWP, 2003-08
                                                                                  • CCPPI has held up relatively well in 2008
                                                                                    • Figure 26: Estimated size of the CCPPI market, by GWP, 2003-08
                                                                                  • Other PPI
                                                                                    • Figure 27: Breakdown of “Other PPI”, by GWP and % of total market, 2006 and 2007
                                                                                • Market Share

                                                                                  • Key points
                                                                                    • The big high street banks are the main distributors of PPI…
                                                                                      • Figure 28: Estimated market share of the top 12 distributors of creditor insurance, by GWP, 2008
                                                                                    • … and are also key players in terms of underwriting polices
                                                                                      • Figure 29: Estimated market share of the main creditor insurance underwritters, by GWP, 2008
                                                                                    • PPI underwriting and commission structures
                                                                                    • Companies and Products

                                                                                      • The PPI market has contracted
                                                                                        • Banks are key players in both underwriting and distribution
                                                                                          • Overview of key distributors and underwriters
                                                                                            • Barclays
                                                                                              • Lloyds TSB
                                                                                                • HBOS
                                                                                                  • RBS
                                                                                                    • Cattles (Welcome Finance)
                                                                                                      • Aviva (formerly Norwich Union)
                                                                                                        • Different types of credit-related PPI
                                                                                                          • PLPPI
                                                                                                            • CCPPI
                                                                                                              • MPPI
                                                                                                                • Secured loan/second-charge mortgage PPI
                                                                                                                  • Retail credit PPI
                                                                                                                    • Motor loan PPI
                                                                                                                      • Overdraft PPI
                                                                                                                        • Standalone PPI does exist but is a very small part of the market
                                                                                                                          • Standalone credit-related PPI is mainly for mortgages
                                                                                                                            • Standalone non-credit-related PPI is another alternative…
                                                                                                                              • … but this is an even smaller market
                                                                                                                              • Brand Communication and Promotion

                                                                                                                                • Key points
                                                                                                                                  • PPI is a very small area of general insurance adspend
                                                                                                                                    • Figure 30: Topline PPI adspend, 2004-08
                                                                                                                                  • Advertising has traditionally focussed on credit card PPI
                                                                                                                                    • Figure 31: PPI adspend, by sub-category, 2006-08
                                                                                                                                  • Co-operative Bank was the biggest advertiser in 2008
                                                                                                                                    • Figure 32: Top 10 companies advertising PPI (by total adspend), 2006-08
                                                                                                                                  • Direct mail is the preferred media type
                                                                                                                                    • Figure 33: PPI adspend, by media type, 2006-08
                                                                                                                                • Channels to Market

                                                                                                                                  • Key points
                                                                                                                                    • Changes in the way PPI is sold from 2010
                                                                                                                                      • The majority of PPI sales are completed in-branch
                                                                                                                                        • Figure 34: Sales of new PPI policies, by distribution channel (based on number of policies sold), 2007
                                                                                                                                      • MPPI is more likely to be sold via an intermediary
                                                                                                                                        • Figure 35: Distribution channels of MPPI policies in force, H1 2004-H1 2008
                                                                                                                                      • Advised PPI sales seem to result in a higher conversion rate
                                                                                                                                      • The Consumer – Product Ownership

                                                                                                                                        • Key points
                                                                                                                                          • Almost half of consumers have no outstanding debts
                                                                                                                                            • Figure 36: Credit product ownership, April 2009
                                                                                                                                          • Families are more likely to have outstanding debts
                                                                                                                                            • Figure 37: Credit product ownership (popular types), by gender, age, socio-economic group, lifestage, marital status, age of own children in household, working status, gross annual household income, and household tenure, April 2009
                                                                                                                                          • People with multiple outstanding debts are more likely to own PPI
                                                                                                                                            • Figure 38: Repertoire of oustanding credit product ownership, April 2009
                                                                                                                                          • More debts – more insurance
                                                                                                                                            • Figure 39: Ownership of PPI, by repertoire of outstanding credit product ownership, April 2009
                                                                                                                                          • MPPI is the most commonly-held type of creditor insurance
                                                                                                                                            • Figure 40: PPI ownership, April 2009
                                                                                                                                          • Evidence of consumer confusion over PPI
                                                                                                                                            • PPI ownership is low amongst young adults and older people
                                                                                                                                              • Figure 41: PPI ownership, by gender, age, socio-economic group, working status, gross annual household income, household tenure, car usage, newspaper readership and household size, April 2009
                                                                                                                                            • Car ownership and household size are also key factors
                                                                                                                                              • PPI ownership has fallen since 2006
                                                                                                                                                • Figure 42: PPI ownership, 2006-09
                                                                                                                                              • Consumer confusion is rife when it comes to PPI
                                                                                                                                                • Figure 43: Credit-product ownership, by PPI products held, April 2009
                                                                                                                                            • The Consumer – Penetration Rates

                                                                                                                                              • Key points
                                                                                                                                                • MPPI has the highest level of penetration
                                                                                                                                                  • Figure 44: Penetration of PPI products into the target market, April 2009
                                                                                                                                                • Around a third of credit card and loan holders have PPI
                                                                                                                                                  • C2s are the best target for creditor insurance providers
                                                                                                                                                    • Figure 45: PPI penetration amongst active credit users, by gender, age, socio-economic group, household income and ACORN group, April 2009
                                                                                                                                                  • Aim high – but not too high
                                                                                                                                                    • Cross-holdings of different types of PPI
                                                                                                                                                      • Figure 46: Ownership of PPI products, by ownership of PPI products, April 2009
                                                                                                                                                  • The Consumer – Attitudes Towards PPI

                                                                                                                                                    • Key points
                                                                                                                                                      • Consumer confusion over PPI is abundant…
                                                                                                                                                        • Figure 47: Attitudes towards PPI, April 2009
                                                                                                                                                      • … and many people don’t trust insurers to pay out on claims
                                                                                                                                                        • Perhaps consumers prefer the idea of standalone PPI?
                                                                                                                                                          • Men are less likely to take out PPI
                                                                                                                                                            • Figure 48: Attitudes towards PPI, by gender, age, socio-economic group, lifestage, gross annual household income and household tenure, April 2009
                                                                                                                                                          • Lower earners may be a better targeting group…
                                                                                                                                                            • … as are renters and pre-/no family consumers
                                                                                                                                                              • People who own credit products have a more negative view of PPI
                                                                                                                                                                • Figure 49: Attitudes towards PPI, by credit product ownership, April 2009
                                                                                                                                                              • Consumer education is key to increasing sales
                                                                                                                                                                • Figure 50: Ownership of PPI, by attitudes towards PPI, April 2009
                                                                                                                                                              • Existing customers particularly disaffected
                                                                                                                                                              • The Consumer – Key Sales Opportunities

                                                                                                                                                                • Key points
                                                                                                                                                                  • Different types of consumer
                                                                                                                                                                    • Young adults are the best target for new business
                                                                                                                                                                      • Figure 51: Attitudinal groups, by gender, age, socio-economic group, lifestage, gross annual household income, household tenure, newspaper readership and education level, April 2009
                                                                                                                                                                    • Third agers are more likely to reject PPI
                                                                                                                                                                      • Highly- and medium-educated people are better targets
                                                                                                                                                                        • PPI Rejecters are less likely to have outstanding debts
                                                                                                                                                                          • Figure 52: Credit product ownership, by attitudinal group, April 2009
                                                                                                                                                                        • Three fifths of PPI User-Supporters have MPPI
                                                                                                                                                                          • Figure 53: Ownership of PPI products, by attitudinal group, April 2009
                                                                                                                                                                        • Bad News Followers have a very negative view of PPI
                                                                                                                                                                          • Figure 54: Attitudes towards PPI, by attitudinal group, April 2009
                                                                                                                                                                      • Appendix – Internal Market Environment

                                                                                                                                                                        • Creditor insurance
                                                                                                                                                                          • CAB, Office of Fair Trading and Competition Commission investigations
                                                                                                                                                                            • Severe restrictions placed on the sale of policies
                                                                                                                                                                              • Treating Customers Fairly
                                                                                                                                                                                • Consumer Credit Act 2006
                                                                                                                                                                                  • Consumer Credit Directive
                                                                                                                                                                                  • Appendix – The Consumer – Product Ownership

                                                                                                                                                                                      • Figure 55: Credit product ownership (popular types), by various demographics, April 2009
                                                                                                                                                                                      • Figure 56: Repertoire of credit product ownership, by various demographics, April 2009
                                                                                                                                                                                  • Appendix – The Consumer – Penetration Rates

                                                                                                                                                                                      • Figure 57: PPI ownership, by various demographics, April 2009
                                                                                                                                                                                  • Appendix – Attitudes Towards PPI

                                                                                                                                                                                      • Figure 58: Attitudes towards PPI, by various demographics, April 2009
                                                                                                                                                                                      • Figure 59: Attitudes towards PPI, by various demographics, April 2009 (continued
                                                                                                                                                                                      • Figure 60: Attitudes towards PPI, by PPI ownership, April 2009
                                                                                                                                                                                  • Appendix – Key Sales Opportunities

                                                                                                                                                                                      • Figure 61: Attitudinal groups, by various demographics, April 2009

                                                                                                                                                                                  Creditor Insurance - UK - July 2009

                                                                                                                                                                                  US $2,648.76 (Excl.Tax)