State of the Payment Protection Industry - PowerPoint PPT Presentation

1 / 28
About This Presentation
Title:

State of the Payment Protection Industry

Description:

Only 1.5% is the difference between being able to solve complex ... But I'm not sure the difference ... Ad for Macy's DPP Program. 3. Back to Our Credit ... – PowerPoint PPT presentation

Number of Views:112
Avg rating:3.0/5.0
Slides: 29
Provided by: Cou117
Category:

less

Transcript and Presenter's Notes

Title: State of the Payment Protection Industry


1
State of the Payment Protection Industry
Presented by Gary Fagg, CreditRe
2
Small Variations Can Make a Big Difference
  • 98.5 of our DNA is identical to chimps DNA
  • Only 1.5 is the difference between being able to
    solve complex lending formulas and sitting in a
    tree throwing poop at passersby
  • But Im not sure the difference is that much
  • Its an election year, and we have poop flying
    everywhere

3
And further EvidenceAd for Macys DPP Program
4
Back to Our Credit Protection World
  • There really is very little variation in the
    protection available under
  • Debt protection products (exempt lenders)
  • Debt waiver products (lenders with no automatic
    exemption from insurance regulation)
  • Credit insurance (where it all began)
  • But the regulatory differences are dramatic

5
Available July 31
6
What Caused the Drop
  • 40 replacement with DPP
  • 20 regulatory mandated elimination of single
    premium products on real estate secured loans
    change was too hard, some just gave up
  • 40 at dealerships, total replacement with more
    profitable protection products (VSC, GAP) and
    refund lawsuits

7
Bank Installment Consumer LoansCredit-Related
Insurance
  • Single premium still visible but many banks are
    not making consumer loans
  • No compelling reason to change

8
Bank Installment Home Equity LoansCredit-Related
Insurance
  • Monthly premium credit-related insurance is a
    modest success
  • Lack of uniformity among states, loan types
  • No involuntary unemployment option
  • Attrition rates of 3 - 5 per month
  • Consumer advocates unimpressed

9
Bank Installment Home Equity LoansCredit-Related
Insurance
10
  • Have debt protection products fulfilled their
    promise?

11
The Most Frequently Asked Question Regarding Debt
Protection Products
  • How much of this stuff will we write in 2008?
  • Guess

12
A Bigger Pie?Looks the Same so Far
13
General Purpose Credit CardsFulfilled Promises
  • 2.7 billion-plus of annual DPP retail fees
  • Complete conversion by major credit card issuers
    to debt protection products
  • All new solicitations in 2008 are debt protection
    products
  • Addition of all-cause death benefit to many
    programs
  • OCC is allowing this market to evolve

14
General Purpose Credit CardsGrowth of
Premium/Fee Income
  • 1.5 Billion of CRI in 2000 3.1 Billion of DPP
    and CRI in 2008
  • Growth in credit card outstandings2000 to
    2008 50
  • Growth in fee rate 2000 - 0.55/100/month 2008
    - 0.90/100/month 63
  • Continued investment in marketing and improved
    acceptance rates

15
General Purpose Credit Cards DPPThe All
(Economic) Weather Product
  • So many events are covered that the cost of
    various protections are balancedone goes down
    when another one goes up
  • Housing recessioncost of move to new residence
    protection is down when involuntary unemployment
    protection is up
  • Epidemic, pandemicbring it on
  • DPP has sales appeal in good times and bad with
    a slight modification in the sales pitch

16
Evolution of Retail Card Sector
  • Prior to 2000, the market was retailer charge
    card
  • (1985) began with Assurant Accountgard
  • 1.50/100/month for 90-day O/B for death,
    disability, and involuntary unemployment
  • (1995) 1.80/100/month by adding 90-day O/B for
    unpaid family leave protection

17
Retailer Revolving Charge CardsThey Went Away
  • Target, Sears, Dillards and Federated converted
    and had strong DPP programs
  • Transitioned from charge cards to general purpose
    credit cards
  • Most portfolios have been sold to the major card
    issuers only Target left as stand-alone program
  • Many private label retailer programs are marketed
    and are doing great

18
Business CardsSlowly Growing
  • Marketplace split among no protection product,
    credit-related insurance, and DPP
  • Advanta, American Express, Capital One, Wells
    Fargo business cards have DPP option
  • Have added business interruption protection
  • Pretty quiet year in this sector

19
Lines/HELOCsWe Are Getting There
  • Clearly the path lending is following at banks
  • Credit-related insurance regulations did not
    allow product features to limit adverse selection
  • Adverse selection still a product design concern,
    but DPP offers a second chance at this market
  • Do not get in the middle when the debate takes
    place on whether to freeze the card during
    benefit activation

20
Home Equity Loans (HELOAN)Slowly, DPP Is
Spreading
  • Primary holdup was lack of bank systems support
    for rate quoting, document production, and fee
    reporting
  • The needed systems are here, mostly
  • Steady but not spectacular growth in 2008 and
    beyond
  • Still have system challenges from open-end
    installment loans
  • Loss experience is quite favorable

21
First Mortgage LoansPoised but Not There Yet
  • Fannie Mae opened the door by delegating DPP
    program approval to field representatives, but
    has not signaled any enthusiasm
  • Freddie Mac has indicated a willingness to follow
  • Other secondary markets are being educated
  • We will get there, I think, but only Bank of
    America is clearly there

22
Coming Innovations and Introductions
  • First Farm Credit Association DPP program is
    slated for introduction in 2008
  • Small business installment loan DPP programs are
    under development
  • Both share the challenge of applying DPP to large
    loan amounts, to a protected population that is
    older and mostly male, and a desire for all-cause
    death protection

23
Vehicle Lending Marketplace
  • Stability has finally been achieved in GAP for
    dealer CLIP premiums
  • FI office is looking for that next hot product
  • WalkawayTM protectionturn in your car keys and
    walk away from your loan, under certain
    conditions
  • Lifetime powertrain warranties for new vehicle
    buyer
  • Lifetime tire protection for life of new vehicle
    buyer

24
Direct Vehicle LoansIts All at the Credit Unions
  • A shrinking portion of bank lending
  • Credit unions now command about 20 of vehicle
    lending
  • GAP and DPP programs are a good fit with bank and
    credit union cultures

25
Vehicle Lending MarketplaceComing Together at
the FI Office
  • 50-year trend in movement of vehicle lending from
    financial institutions to dealer FI office
  • Zero-percent financing by manufacturers
    financing arms almost killed vehicle lending at
    banks
  • Credit-related insurance has fallen off the
    table exits by JMIC, UUL, and AIG/AGAC over
    refund lawsuits

26
Indirect Lending DPP The Regulatory Gap Has Been
Breached
  • Desire is to port the bank exemption into the FI
    office loan process
  • OCC Interpretative Letters 1093 and 1095 in March
    2008 provide the path for a dealer to offer any
    bank DPP
  • It will be rough starting, but uniform product
    will arrive and eventually mimic the current GAP
    waiver structure

27
(No Transcript)
28
If you build it, they will come.
Write a Comment
User Comments (0)
About PowerShow.com