UK Payment Protection Insurance - Market Update - April 2009

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 of more short-term IP products to the market.

Report 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.
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DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
ANALYSIS 2
Introduction 2
The Competition Commission has decided on a forceful package of remedies 2
The Competition Commission has decided to ban sales of PPI at the point-of-sale of the credit product 2
Single-premium policies will also be prohibited 3
Banks will see PLPPI commission revenue drop sharply in 2009 5
The remedies are designed to promote shopping around and switching 7
The point-of-sale prohibition is designed to give consumers time to search the market 7
The prohibition on single-premium policies will weaken barriers to switching 7
Insurers and distributors should focus on mitigating potential falls in PLPPI penetration rates 9
The biggest challenge facing the industry is mitigating potential falls in PLPPI penetration 9
Executives think outbound telemarketing is unlikely to be an effective method of selling PLPPI 9
Lenders will need to encourage consumers to phone the lender or visit their Internet site the following day 10
Penetration rates of MPPI are expected to see little change 11
CCPPI penetration rates may fall by one quarter 11
Distributors will need to compete on price under the new market structure 12
Mass market advertising is unlikely to increase 12
Providers will need to compete on price under the new market structure 12
Aggregators could present opportunities for direct insurance propositions 13
The market may see the introduction of short-term IP products and PPI may be re-branded by some players 13
The PPI market will contract significantly in 2009 due to the migration to single-premium PLPPI 13
The move to single premium PLPPI means a significant contraction in GWP in 2009 14
The PPI market has contracted between 2006 and 2008 driven by falls in PLPPI, CCPPI and SMPPI GWP 14
The move to single premium PLPPI leads to a large GWP reduction in 2009 15
Premium income from PPI on first charge mortgages and credit cards is expected to see little change 15
The second charge mortgage and motor loan PPI sectors are expected to play a much smaller role in the market 15
The PPI market is worth £2.8b in 2013 under the optimistic scenario 18
The PPI market is worth £2.2b in 2013 under the pessimistic scenario 22
APPENDIX 25
Methodology 25
Further reading 25
Ask the analyst 25
Datamonitor consulting 25
Disclaimer 25
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Table 1: Penetration rates of PLPPI, CCPPI and MPPI, 2008-11 11
Table 2: Assumed penetration rates following the point-of-sale prohibition 14
Table 3: Forecast of PPI GWP, neutral scenario, 2009-13 17
Table 4: Assumptions underlying the neutral forecast 18
Table 5: Forecasts of PPI GWP, optimistic scenario, 2009-13 (£m) 20
Table 6: Assumptions underlying the optimistic forecast 21
Table 7: Forecast of PPI GWP, pessimistic scenario, 2009-13 23
Table 8: Assumptions underlying the pessimistic forecast 24
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 3
Figure 2: Current loan protection offering from leading banks 4
Figure 3: The Competition Commission's remedies include a point-of-sale prohibition and a prohibition on single-premium policies 6
Figure 4: The remedies are designed to encourage provider transparency and consumer search 8
Figure 5: The seven day prohibition for PLPPI starts when the customer receives a signed credit agreement 9
Figure 6: Distributors must focus on mitigating the potential fall in PLPPI penetration rates 10
Figure 7: The prohibition for MPPI starts when the consumer receives a firm mortgage offer 11
Figure 8: Distributors will be able to sell CCPPI during the activation phone call 12
Figure 9: PLPPI GWP drops significantly in 2009 as most major lenders have stopped selling single-premium policies 16
Figure 10: The PPI market grows more strongly in 2011-13 under the optimistic scenario 19
Figure 11: Steep falls in penetration rates in 2011 dampen market growth between 2011 and 2013 22
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