Table of Contents
Executive Summary
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- Short, medium and long-term impact on the industry
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- Figure 1: Expected impact of COVID-19 on financial services, short, medium and long term, [5 June 2020]
- Short term
- Medium term
- Long term
- Market forecasts
- Mortgage lending set to dive in 2020 but a sharp recovery is expected
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- Figure 2: Forecast of gross mortgage lending (adjusted for COVID-19), 2015-25
- Consumer credit dented by falling appetite for big-ticket purchases
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- Figure 3: Forecast of gross consumer credit lending (adjusted for COVID-19), 2015-25
- Savings look likely to be boosted by cautious consumers
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- Figure 4: Forecast of total retail savings deposits (adjusted for COVID-19), 2015-25
- Cost pressures to cause a dip in general insurance premiums
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- Figure 5: Forecast of general insurance gross written premiums, domestic business (adjusted for COVID-19), 2015-25
- … while protection will suffer a sharp decline this year
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- Figure 6: Forecast of protection insurance gross written premiums, individual business (adjusted for COVID-19), 2015-25
- Pensions to take a temporary hit
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- Figure 7: Forecast of new pensions premiums, regular premiums only (adjusted for COVID-19), 2015-25
- Changing market dynamics
- Insurance claims will hit a record high
- FinTechs will feel the heat of funding pressures
- Payment holidays pose cashflow challenges for lenders…
- … while lenders face a rise in problem debt
- Impact on the marketing mix
- Consumers will step up price demands
- Familiarity will be a valuable commodity
- Online-first finance
Opportunities and Threats
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- Markets linked to travel and auto industries were exposed most quickly
- Crisis offers an opportunity for banks to change perceptions…
- Helping consumers to manage the recession
- … but banks are not immune to the effects of COVID-19
- Insurers could take a reputational hit
- An acid test of digital finance
How a COVID-19 recession will reshape the market
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- Rising unemployment and falling confidence will hit long-term lending
- Investors will be tested, with inexperienced ones likely to withdraw funds
- Savings will be prioritised over managing debts
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- Figure 8: Planned financial activity over the next three months, January 2019-May 2020
- Learnings from the post-financial crisis recession
- Greater availability of credit will provide a much quicker lending recovery
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- Figure 9: Gross mortgage lending, 2007-13
- Consumers find a way to boost their savings in a crisis…
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- Figure 10: Total retail savings deposits, 2007-13
- … but any uplift in savings is likely to be temporary
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- Figure 11: Household savings ratio, Q1 2006-Q3 2019
- Consumers became more demanding…
- … leading to dampened insurance premium growth
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- Figure 12: Domestic home insurance gross written premiums, 2007-13
The Impact of COVID-19 on Consumers
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- Anxiety levels align with case curve...
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- Figure 13: Mintel COVID-19 exposure anxiety index, 28 February – 3 June 2020
- … but consumers remain anxious about their health
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- Figure 14: People’s level of concerns about the risk of being exposed to the coronavirus, 28 February – 3 June 2020
- COVID-19 concerns by demographics
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- Figure 15: Proportion of consumers showing the highest degree of concern (4 or 5 out of 5) regarding the risk of being exposed to the coronavirus, by age, 28 February – 3 June 2020
- UK begins to soften lockdown measures
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- Figure 16: Government COVID-19 lockdown exit strategy, published 11 May 2020
- Lockdown fears moderate
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- Figure 17: People’s level of concerns about how the outbreak might affect their lifestyle, 28 February - 3 June
- A bleak outlook for the economy
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- Figure 18: Consumer views on the impact of the COVID-19 outbreak on the UK economy and their own finances, 28 May – 3 June 2020
- Consumers cut back outgoings, and add to savings
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- Figure 19: How consumers have been affected or changed their behaviour as a result of the outbreak, 21-28 May 2020
- Household finances hold steady for most
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- Figure 20: Changes in financial situation since the start of the COVID-19 outbreak, 21-28 May 2020
- COVID-19 is yet to meaningfully affect most households’ well-being…
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- Figure 21: The financial well-being index, January 2015-May 2020
- … but confidence for the year ahead plummets
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- Figure 22: Consumers’ financial confidence for the coming year, May 2020
- Middle age groups feel particularly vulnerable…
- … and self-employed respondents show the importance of the COVID-19 support package
How COVID-19 Has Already Affected Financial Services
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- Retail banking
- Half are avoiding using cash
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- Figure 23: Changes in shopping habits as a result of COVID-19, April-May 2020
- Providers have encouraged use of online services
- The travel money market has been put on hold
- Savings and investments
- Investment markets have been ravaged
- Saving activity has increased
- Borrowing
- Payment holidays will be a lifeline for many
- An interest rate cut, but not for all
- Mortgages have been hit by a frozen housing market…
- …with car finance lenders in a similar position
- Current account providers have amended overdraft rules to support customers
- Insurance
- Travel insurance hit by a spike in claims and removed from sale
- Insurers have also pulled income protection
- Business insurance policyholders are unlikely to be covered
- Admiral sets a precedent with motor insurance refunds
Which Behaviours Will Change in the Short Term?
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- Income cuts will limit usual downturn savings behaviour…
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- Figure 24: Planned financial activity over the next three months, January 2019-April 2020
- … but the value of savings should still increase
- Revolving credit will become a necessary source of funds
- Consumers must be helped in avoiding pensions mishaps
- Opportunities for peer-to-peer payment services
- Protection comes into focus…
- … but consumers are likely to shelve environmental concerns in the short term
Which Behaviours Will Change in the Medium Term?
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- A short-term housing boom?
- Demand for loans will rise
- Car finance will also rebound quickly
- Self-employed will look to protect themselves
- Insurance conditions will face greater scrutiny…
- Arranging travel cover will become a more serious task
- … but price will still be key
Which Behaviours Will Change in the Long Term?
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- Significant mainstream change in behaviour is unlikely...
- … but a more careful outlook is likely to persist
- COVID-19 will be a formative experience for Gen Z
- The digitisation of personal finance will accelerate…
- … and previous trends will return to the fore
Lessons from Other Markets
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- An opportunity to build a more responsible relationship with credit
- Families can offer valuable, often untapped support
- An outpouring of love for the NHS
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