Boston, MA -- (ReleaseWire) -- 03/05/2014 -- Creditor insurance protects policyholders against the risk of debt non-payment in the event of sickness, or unemployment. The category has been thrust into an unfavorable spotlight following widespread controversy over the selling practices of payment protection policies by retail banks, the primary distributors of the product.
The bank-led distribution model means that insurers constitute only a small proportion of the estimated GBP5 billion market. Gross written premiums reported in annual regulatory returns totaled GBP711 billion in 2012, and fell by 7.9% from a year earlier. Underscoring the process of consolidation in the category, premiums have fallen at a compound annual growth rate (CAGR) of -7.4% since 2008.
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The review period was characterized by recession and high unemployment. Despite economic uncertainty and rising job insecurity, which should have supported demand for creditor insurance, growth in the category was impaired by a combination of regulatory intervention, negative press coverage and customer resentment. In addition, lengthy investigations and a costly redress program triggered banks to withdraw from the distribution process.
Remedial measures, which include a ban on creditor insurance policies at the point of sale of a loan or credit card, and the prohibition of single-premium payments, have reshaped the landscape for creditor insurance. The industry has shifted towards simplified products which can be sold on a standalone basis, or through price-comparison websites, in an attempt to restore the reputations of insurers, banks and creditor products themselves.
Throughout the investigations into payment protection insurance (PPI) selling practices, the Financial Conduct Authority (FCA), formally the Financial Services Authority (FSA) affirmed its belief that creditor insurance is inherently a functional and practical product. However, insurers in this category face many challenges in the current transition phase. Restoring consumer confidence, re-establishing links with banks castigated by regulators, and introducing unfamiliar creditor products represent significant challenges to growth.
Despite the strong downside risks to the outlook for the creditor insurance category, a prevailing expansion will be underpinned by a recovery in the UK economy and rising awareness of, and demand for, new short-term protection products. Gross written premiums in the category are forecast to grow at a compound annual growth rate of 2.5% between 2013 and 2017, logging a total of GBP794 million by the end of this period.
- Creditor insurance has a tarnished image
- Premium growth has been on a downward trend
- Customer complaints soared and banks withdrew from the market
- Regulatory intervention spurred a modification of the products on offer
- Reversing customer discontent will prove to be the largest obstacle
Companies Mentioned in this Report: Aviva Plc, Direct Line Insurance Group Plc, Genworth Financial, Hiscox Ltd, Pinnacle Insurance Plc, Sterling Insurance Group Ltd
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