Products that don't sell: What customers turn down and why - UK - February 2006

TABLE OF CONTENTS

• Introduction and Abbreviations
• Aims of the report
• Abbreviations
• Executive Summary
• A number of factors are thought to be constraining financial productsales
• Several products are only held by a small minority of adults
• More than a third of consumers have regretted making a financialpurchase
• Around 13 million consumers are not satisfied with the product range
• More than four in ten consumers are switched off by financialmatters
• A third of consumers would buy more products if they understood them
• Some products appear to have the scope to significantly increasesales
• Lack of money is perceived as the key deterrent to financialparticipation
• Market Background
• Social and medical advancements are boosting life-expectancy levels
  • Figure 1: Expectation of life at birth, bygender, 1900-2050
• The ageing population profile will impact on demand for financialservices
  • Figure 2: UK population, by age bracket,1995-2025
• Erosion of state support is raising the need for self-provision
• Changing household patterns are affecting the financial servicesmarket
  • Figure 3: Household composition, 1979-2002
• Labour market trends will also influence financial services demand
  • Figure 4: Summary of the UK labour market,1995-2005
• Low nominal interest rates have also affected the financiallandscape
  • Figure 5: Bank of England base rate, endof quarter, 1973-2005
• The Environment for Financial Products
• Consumer apathy is felt to be constraining financial product sales
• Product complexity is also believed to be acting as a deterrent
• This problem is exacerbated by relatively low levels of financialcapability
• Many financial services products require a high degree of advice
• Inadequacies in the provision of financial advice have hamperedsales
• Policymakers are taking steps to provide wider access to basicadvice
• Mis-selling scandals have hit sales of some financial products
• The financial services industry needs to improve its tarnished image
• The stockmarket slump has hit demand for investment products
  • Figure 6: FTSE 100 Index, end of month,1994-2005
• Recovery in share prices could stimulate demand in the next fewyears
• Wealth is concentrated among a small proportion of the population
  • Figure 7: Concentration of wealth amongthe UK adult population, 1976-2002
• Tax incentives have tended to be confusing and poorly targeted
• Means-tested benefits are also believed to be acting as a deterrent
• Financial providers may not be getting their marketing messageacross
• The financial services industry suffers with the problem ofintangibility
• Product complexity also presents a potential barrier to effectivemarketing
• There may also be problems associated with the products themselves
• Insurance Products
• Individual PMI sales have stagnated over the course of the lastdecade
  • Figure 8: PMI subscriptions, by companyand individual purchase, 1994-2005
• Escalating premiums have been a key factor behind the decline insales
• Improvements in the NHS have also had an impact on growth prospects
• Partnership with the NHS could provide opportunities for PMIproviders
• The ageing population could also create further opportunities
• New sales of income protection policies are on a downward trend
  • Figure 9: New sales of individual incomeprotection policies, by volume and value, 2000-05
• A fall in mortgage-related business partly explains the decline insales
• However, other factors have also hit the income protection market
• State benefit amendments could kick-start interest in this sector
• Clearer policy details may also boost income protection sales
• Negative publicity for payment protection could provide a furtherboost
• Product development could also increase the appeal of incomeprotection
• Extended warranty sales have fallen in recent years
  • Figure 10: Estimate of new extendedwarranty sales, 2000-04
• A reduction in expenditure on domestic electrical goods has hitsales
• The market has also been hindered by a particularly poor image
• Extended warranty providers need to regain consumers' faith
• Banking and Lending Products
• The last few years have seen a big shift away from endowmentmortgages
  • Figure 11: Mortgage repayment method, allloans, 1999 and 2004
• The poor performance of endowment policies has hit this market
• Mis-selling claims and negative publicity have exacerbated theproblem
• The suitability of endowment-linked mortgages has been questioned
• Offset mortgages have so far failed to stimulate significant demand
• The perceived complexity of these products is inhibiting growth
• Further penetration of the ABC1 segment offers some growth prospects
• The account aggregation market has so far largely failed to take off
• Security concerns remain an issue for some potential users
• Continued growth in online banking should provide a boost to thissector
  • Figure 12: Personal bank accountsaccessible by telephone and via the Internet (MBBG only), 1999-2004
• The arrival of a mainstream player could drive the market forward
• Saving and Retirement Planning Products
• The need for people to save for their pensions has never beengreater
• Stakeholder pensions were introduced to close the savings gap...
• ...but they have so far failed to stimulate pensions demand
  • Figure 13: Stakeholder pension sales,2001-05
• The pensions message is somehow failing to get through
• Raising awareness levels is therefore a key priority
• The state may also need to offer greater incentives to encouragesavings
• Workplace access to stakeholder pensions would not appear to beenough
• Could the supermarkets come to the rescue?
• The Child Trust Fund is another government initiative to boostsavings
• There are a wide range of accounts for parents to choose from
• Just under half of all eligible parents have so far failed to openaccounts
• The government has been accused of not promoting the scheme enough
• Child Trust Funds will become the most widely held children'saccounts
• Investments
• Collective investments sales have been lacklustre for the last fiveyears
• Investment markets have been hit by negative investor sentiment
• But the recovery in share prices should start to restore investorconfidence
• The slowdown in the housing market could also provide a sales boost
• The ageing population profile should be positive for investmentmarkets
• With-profits products have also suffered due to the stockmarketslump
• Mis-selling accusations have further knocked confidence in theseproducts
• Insurers need to rebuild consumer trust in with-profits policies
• The ethical investments market is now worth more than £5.5 billion
• There would appear to be scope to extend ethical investmentspenetration
• The Consumer -- Ownership and Sectors that Fail
• Financial services products enjoy varying levels of ownership
  • Figure 14: Ownership rates for selectedfinancial services products, December 2005
• Protection products only tend to be held by a small minority ofadults
• Investment products also tend to appeal to just a small section ofsociety
• Offset mortgages have so far failed to achieve widespread popularity
• Women, over-65s and DEs are less inclined to arrange protectionpolicies
  • Figure 15: Ownership rates for selectedinsurance and mortgage products, by gender, age and socio-economicgroup, December 2005
• Full-time workers have a strong propensity to own protectionproducts
  • Figure 16: Ownership rates for selectedinsurance and mortgage products, by lifestage, working status and TVregion, December 2005
• Waitrose customers enjoy relatively high ownership of protectionpolicies
  • Figure 17: Ownership rates for selectedinsurance and mortgage products, by media usage, commercial TV viewingand supermarket usage, December 2005
• ABs and older consumers are more likely to hold investment products
  • Figure 18: Ownership rates for selectedsavings and investment products, by gender, age and socio-economicgroup, December 2005
• Consumers in the South have relatively high investment penetrationrates
  • Figure 19: Ownership rates for selectedsavings and investment products, by lifestage, working status and TVregion, December 2005
• Broadsheet readers enjoy relatively high investment ownership levels
  • Figure 20: Ownership rates for selectedsavings and investment products, by media usage, commercial TV viewingand supermarket usage, December 2005
• More than a third of consumers have regretted making a financialpurchase
  • Figure 21: 'Have regretted arranging afinancial services product', by gender, December 2005
• Consumers are most likely to have regrets over credit and loanproducts
• One in 15 consumers regret arranging an endowment mortgage
• There were also regrets over extended warranties and paymentprotection
• Few consumers regret purchasing the other types of financialproducts
• Men are more likely than women to be harbouring regrets
• Almost half of 45-54-year-olds have regrets over a financialpurchase
  • Figure 22: 'Have regretted arranging afinancial services product', by age group, December 2005
• ABC1s are more inclined to regret arranging financial services
  • Figure 23: 'Have regretted arranging afinancial services product', by socio-economic group, December 2005
• Consumers in the South and Yorkshire/North East have the mostregrets
  • Figure 24: 'Have regretted arranging afinancial services product', by TV region, December 2005
• The Consumer -- Satisfaction and Understanding
• The majority of adults feel financial products meet all or most oftheir needs
  • Figure 25: Satisfaction with financialproducts currently available, December 2005
• But around 13 million financial services customers are not fullysatisfied
• Men, 45-54s and C1s are more inclined to feel their needs are notcovered
  • Figure 26: Satisfaction with financialproducts currently available, by gender, age and socio-economic group,December 2005
• C2DE 35-54-year-olds are most likely to feel their needs are notcatered for
  • Figure 27: Satisfaction with financialproducts currently available, by age/socio-economic group, lifestage andworking status, December 2005
• Mid-market tabloid readers typically feel their financial needs arecovered
  • Figure 28: Satisfaction with financialproducts currently available, by TV region, ACORN group and media usage,December 2005
• More than four in ten consumers are switched off by financialmatters
  • Figure 29: 'Tend to switch off when itcomes to financial matters', December 2005
• Women and Es are most likely to be turned off by financial matters
  • Figure 30: 'Tend to switch off when itcomes to financial matters', by gender, age and socio-economic group,December 2005
• Nearly half of all part-time workers show little interest inpersonal finance
  • Figure 31: 'Tend to switch off when itcomes to financial matters', by working status, TV region and mediausage, December 2005
• A third of consumers would buy more products if they understood them
  • Figure 32: 'Would arrange more financialproducts if I understood them more', December 2005
• Enhanced financial understanding will have most impact on the 16-34s
  • Figure 33: 'Would arrange more financialproducts if I understood them more', by gender, age and socio-economicgroup, December 2005
• Four in ten Londoners would buy more products if they understoodthem
  • Figure 34: 'Would arrange more financialproducts if I understood them more', by working status, TV region andmedia usage, December 2005
• More than four in ten consumers would like to be more financiallyaware
  • Figure 35: 'Would like to be betterinformed about financial matters', December 2005
• More than half of all 16-34-year-olds would like to be betterinformed
  • Figure 36: 'Would like to be betterinformed about financial matters', by gender, age and socio-economicgroup, December 2005
• Half of all full-time workers yearn for greater financial knowledge
  • Figure 37: ' Would like to be betterinformed about financial matters', by working status, TV region andmedia usage, December 2005
• Financial providers should direct their efforts at 16-34s, men andC2Ds
  • Figure 38: Potential target audience, bygender, age and socio-economic group, December 2005
• The Consumer -- Products that Could Succeed and Encourage GreaterParticipation
• Some products appear to have the scope to significantly increasesales
  • Figure 39: Proportion of consumers whowould be interested in arranging specific products, December 2005
• The 'combined insurance' concept generated the greatest level ofinterest
• Children's savings, pensions and account aggregation all createdinterest
• Protection products would appear to have scope to increase sales
• Offset mortgages and all-in-one accounts could boost their marketshare
• Investment products only appeal to a small proportion of consumers
• Men, C1s and 16-34s were most interested in protection products
  • Figure 40: Proportion of consumers whowould be interested in arranging specific insurance and mortgageproducts, by gender, age and socio-economic group, December 2005
• The 'family' group were most interested in combined insurancepolicies
  • Figure 41: Proportion of consumers whowould be interested in arranging specific insurance and mortgageproducts, by lifestage, working status and TV region, December 2005
• ABs, 35-54s and women have the strongest desire for ethicalinvestments
  • Figure 42: Proportion of consumers whowould be interested in arranging specific investment products, bygender, age and socio-economic group, December 2005
• Scottish consumers displayed the most interest in endowment policies
  • Figure 43: Proportion of consumers whowould be interested in arranging specific investment products, bylifestage, working status and TV region, December 2005
• Lack of money is perceived as the key deterrent to financialparticipation
  • Figure 44: Factors which would encouragepeople to arrange more products, by gender, December 2005
• Rebuilding trust would encourage some consumers to participate more
• The provision of free financial advice might provide a boost tosales
• Women are particularly in need of greater access to financial advice
• Product complexity is also seen as a deterrent to financialparticipation
• Tax concessions could stimulate demand among some consumers
• Trust is an important issue for more than one in six 25-54-year-olds
  • Figure 45: Factors which would encouragepeople to arrange more products, by age group, December 2005
• Free advice would encourage one in six ABs to arrange more products
  • Figure 46: Factors which would encouragepeople to arrange more products, by socio-economic group, December 2005
• Problems with debt are inhibiting more than one in ten Scottishconsumers
  • Figure 47: Factors which would encouragepeople to arrange more products, by TV region, December 2005
• Potential offset mortgage customers struggle with product complexity
  • Figure 48: Factors which would encouragepeople to arrange more products, by consumers who would be interested inarranging specific insurance and mortgage products, December 2005
• Lack of cash is a major problem for potential pension and ethicalinvestors
  • Figure 49: Factors which would encouragepeople to arrange more products, by consumers who would be interested inarranging specific investment products, December 2005
• Consumer typology groups
• Typology 1: Willing but Easily Bored
• Typology 2: Interested in Finance
• Typology 3: Uninterested & Self-Helpers
  • Figure 50: Typologies relating toattitudes towards finance, by gender, age, socio-economic group and TVregion, December 2005
• Repertoire analysis
  • Figure 51: Repertoire of responses dealingwith reasons likely to make consumers take a greater interest in theirfinances, December 2005
• The Future
• The 'combined insurance' concept generated considerable interest
• Children's savings, pensions and account aggregation all createdinterest
• A number of other products also appear to have the scope to boostsales
• Regaining trust would encourage some consumers to buy more products
• The provision of free financial advice could also provide a boost tosales
• Product complexity is also seen as a deterrent to financialparticipation