The creditor insurance industry in the UK has been in decline due to the payment protection insurance (PPI) mis-selling scandal and is unlikely to recover, according to a report by data provider Timetric.
The report said the PPI scandal, which revealed UK banks' "dishonest PPI sales strategy and elicited compensation claims worth billions of pounds", caused the market to "plummet" in 2009-2013 and again in 2014.
The firm said there were "supportive trends" in the market, such as lending to individuals and raised customer confidence, but these would not be enough to prevent further decline in the next four years.
Steffen Mueller, financial services analyst at Timetric, said: "Although a move towards short-term income protection products has helped some providers to dissociate from the toxic term PPI, the market's tarnished reputation continues to strain almost all of creditor insurers' books.
"The leading creditor insurers in the UK all saw their premium income in the category falling significantly in 2014".
Timetric said the creditor insurance share in insurers' non-life portfolio was "shrinking" and it would remain on a "downward trend". The firm estimated gross premiums would decrease at a compound annual growth rate of -6.62%, from £496.8m in 2013 to below £300m in 2018.
"Following the scandal, most UK banks have exited the PPI market and are still recovering and cutting losses. Distribution options for payment protection products are therefore limited. To date, a more positive outlook does not seem that realistic," Mueller said.
Meanwhile, the Financial Conduct Authority (FCA) is considering whether additional rules and/or guidance are needed to tackle PPI selling, following a court ruling.
The FCA announced in January that it would be reviewing evidence and policies around PPI and it is expected to report in the summer.
But due to a Supreme Court ruling in Plevin V Paragon Personal Finance, the FCA is considering whether it will introduce additional rules around PPI selling. The case centred on Susan Plevin, who was sold PPI with a premium of £5,780. Of the premium, 71.8% was taken in commission and this was not disclosed to Plevin.
The court ruled that a failure to disclose to a client a large commission payment on a single premium PPI policy made the relationship between the lender and borrower "unfair".
The regulator will be having talks with relevant stakeholders in the coming months to discuss its views on this, including next steps.