The PPI party

Payment protection insurance sales have plummeted in the UK thanks to a combination of heavy regulatory intervention and intensive media attention.

UK banks are paying out millions of pounds in compensation to millions of customers and the product is sinking fast. However, across the Channel and the picture is entirely different. The product is receiving positive attention from customers who see the need for extra cover in turbulent economic times.

Large market
According to a recent survey, by Finacord, across 20 European countries, loan and credit card protection insurance combined were worth around €10.84bn in gross written premiums in 2011, slightly down from €10.91bn in 2007.

While The UK market dived from €3.6bn in 2007 to around €850m in 2011, as most banks and other lending institutions withdrew their products, GWP for loan and credit card payment protection insurance increased in the other 19 countries from around €7.31bn to €9.99bn, a rise of 36.6%.

"In most countries bancasssurance is still growing, whereas it has stalled quite badly in the UK." Leach

 End of the gravy chain
"The gravy train in the UK is over," says Alan Leach, director at Finaccord. "But in Europe banks are keen to tap into viable revenue streams. In most countries bancasssurance is still growing, whereas it has stalled quite badly in the UK where the banks are in competition with many other distribution channels.

"In Europe aggregators are beginning to get their feet in the door but it is from a very low base level, and the banks continue to do well with bancassurance. Some banks changing their models, including selling off their insurance subsidiaries, either completely or as part of a joint venture but they still want the business. For example, KBC in Poland has just sold off its captive."

Death knell
While regulatory intervention has sounded the death knell for PPI in the UK,  other European regulators have taken a slightly different approach, Leach points out. In France, he says "the regulator has adjusted market practice but not taken action that might stamp the product out".

French banks must clearly and explicitly inform borrowers that they may obtain payment protection insurance from a third party of their own choosing over and above the bank itself.

Leach says: "This is leading to a lively market for selling these types of insurance through channels other than the lending institutions themselves, while simultaneously raising awareness of the products among customers, albeit the banks still account for the lion's share of sales." PPI also requires an individual approach - it is sold against specific loans - making it easier for the banks to retain a competitive edge.

 "It is worth noting that there are significant regulatory, customer and market dynamics at work across Europe." Aviva

French leader
According to Finaccord's research, six of Europe's top 10 underwriters of PPI are likely to originate from France. In terms of their weighted share of partnerships, which takes into account both the number of retail customers of their distributors and the size of the markets in which they are active, BNP Paribas is ranked highest with a weighted share of 14.7%.

In second position although some way behind, with an equivalent figure of 5.2%, is French rival CNP Assurances, followed by Crédit Agricole (4.4%), Talanx (4.1%), Crédit Mutuel (3.0%), AXA (3.0%), Genworth Financial (2.9%), Allianz (2.8%), Santander (2.5%), and Société Générale (2.1%).

Aviva proxy
"Ranked 11^th Aviva would have been higher had it not been for the collapse of its home market in the UK, and this group's activity in payment protection insurance will become increasingly reliant in future on its bancassurance agreements outside of the UK," Finaccord says. "While not directly equivalent to market shares of premiums, these weighted shares may be considered a reasonable proxy for them in most cases."

A spokesman from Aviva responds: "It is worth noting that there are significant regulatory, customer and market dynamics at work across Europe making direct comparison to the UK problematic. Historically bancassurance is a more widely adopted distribution model in Europe accounting for 11% property and casualty premium income in 2008 (expect to grow to 15% by 2015)."

 "Historically, the complexity of the product and the high number of intermediaries has often resulted in a lack of transparency." Enevoldsen

 

Historic strength
"In addition," the spokesman continues, "to the historic strength, the channel has also seen growth in European emerging markets, where change in consumer attitudes has seen the development of customers who are more inclined to protect themselves financially when taking on debt.

"In more developed markets banks' core products are under increasing pressure due to the current economic environment, and as a result banks have increased their focus on the sale of insurance products. In addition, customers are increasingly recognising the value of protecting themselves and their assets during this economic downturn leading to increased cognisance of the need for insurance protection."

Product innovation
He claims: "Aviva has been at the forefront of product innovation in the UK market, taking the lessons learned within the market from PPI mis-selling, by introducing a new short-term income protection product. We are leading the market by introducing risk-based underwriting with STIP - in line with Aviva's commitment to individual recognition."

However, Leach is not convinced. "A few banks have started to sell STIP in the UK but if you look at the products they are not dissimilar to PPI. Given there is so much negativity about the product, personally I am sceptical that it will fill the gap in any meaningful way."

"In Europe the PPI party carries on." Leach

Primary problem
Ole Enevoldsen, the newly appointed business development director and head of underwriting for Continental Europe at Ryan Specialty Group (Europe) and head of Jubilee Europe BV, the Dutch subsidiary of Jubilee Holdings, which RSG acquired last September 2011. He believes the problems in the UK "primarily come down to PPI being a secondary or tertiary sale, sold on the back of a customer making a retail purchase or arranging finance".

"Historically, the complexity of the product and the high number of intermediaries has often resulted in a lack of transparency and difficulties in ensuring the product is suitable for the customer. Although there are differences in the way PPI is sold in other European countries, these challenges basically remain the same."

PPI party
"However," he adds "in the current economic environment in Europe there is an increased need for PPI, which in its nature provides a valuable security both to the client and the lender. The development in the past underlines the necessity to manage and control the distribution chain, and shows it is essential not to underestimate the complexity of mass distribution structures.

Enevoldsen claims: "The key is to offer high quality products with a clear focus on the value to the end client and sell these professionally and transparently." So, as Leach concludes: "In Europe the PPI party carries on."