Payment protection Insurance hits hurdle
The number of people taking out payment protection insurance (PPI) has fallen following a run of bad publicity and lower lending levels, a report has said.
Market analyst Datamonitor said premium income from PPI fell by nearly 4% during 2006 to £5.4 billion.
PPI, also known as creditor insurance, covers debt repayments if people are unable to work due to an accident or illness or if they lose their job.
But the group said sales of the product had been hit by a run of negative publicity, such as claims that the insurance was overpriced and being mis-sold to people who would never be able to claim on it.
Datamonitor said this negative portrayal had discouraged consumers from even considering buying the cover, adding that if this view of the product became entrenched, growth in the market would be considerably dampened.
Work by various regulatory bodies, including City watchdog the Financial Services Authority and competition watchdog the Office of Fair Trading, have also highlighted poor sales practices in the market. These ranged from lax sales controls, to consumers not being told the true cost of a policy.
The problems have been addressed by the FSA, leading to new sales practices, but this has also hit take-up levels in the short-term as PPI sales teams adapt to the new procedures.
At the same time Datamonitor said lower lending levels were also affecting sales of PPI, as the cover is generally sold alongside loans and mortgages, with premiums calculated as a percentage of the repayments.
It said sales of the insurance alongside mortgages had increased slightly, but this had failed to offset the fall for other products, particularly loans. The group said it expects the market to grow slowly during the coming few years, with premium income edging ahead to £6 billion by 2011.
Author of the report Andrew Haslip said: “The UK creditor market is currently enduring the perfect storm of poorer penetration rates, weaker underlying credit markets, regulatory scrutiny and negative publicity, however this should abate in the coming years.”