UK consumers are predicted to heed recent warnings and get much better at managing their money as Britain in 2008 will see more financial ‘Connoisseurs’ and ‘Aspirers’ at the expense of ‘Head Buriers’, according to MORI Market Dynamics.
At a time of widespread concern over people’s attitudes towards their finances it is predicted that by 2008 there will be 27 per cent more financial ‘Connoisseurs’ (8 million UK adults) and 17 per cent more ‘Aspirers’ (12 million UK adults) in the UK. But it is the ‘Head Burier’ culture that will still dominate the financial landscape with 23 million UK adults remaining disinterested and unconfident with their money.
The new Forecasts Consumer Finance report combines research and econometric analysis to provide forecasts of all major financial services markets. It predicts that the protection, non life savings and health markets will see significant growth while the mortgage market will suffer, declining three per cent in real terms during 2004 alone.
Jon Francis of MORI Market Dynamics commented: “This is the first and most thorough analysis of the financial services arena conducted in recent years. It is clear from our study that while most product areas are forecast to see significant growth the mortgage market has some volatile times ahead and is currently at a crossroads. It is encouraging that people will be more savvy with their money by 2008 but clearly there is a long way to go and we believe that the industry and government have to do more to help change the ‘Head Burier’ culture, currently so prevalent across the UK.
“In the longer term we expect that sheer necessity coupled with pressures as diverse as media coverage, the internet, government and supply side initiatives, will increase connoisseurship among financial service consumers. This will largely be at the expense of the ‘Head Buriers’, who will slowly decline in number as financial education improves and interest in personal finance increases.”
Predicted consumer activity to 2008
Based on the dimensions of confidence and knowledge, consumers’ attitudes towards finance can be broadly divided into four groups:
Connoisseurs
More than six million (13%) of UK consumers are ‘Connoisseurs’ and this group is interested, confident and ‘savvy’ towards financial services markets. People in this group are more likely to be ABC1, aged 35-54, male and internet users. Less confident consumers are more likely to be DE, the youngest age groups and female. ‘Connoisseurs’ are likely to shop around for financial products and look at performance or rates rather than brand in financial services choice.
‘Connoisseurs’ are the group predicted to see the biggest growth in the coming years with a 27 per cent rise by 2008 to nearly eight million people. On this evidence it is apparent that people will in time heed the warnings and become more astute with their money.
Aspirers
More than one in five consumers (21%) aspire to financial sophistication but do not feel adequately knowledgeable. The ‘Aspirers’ are likely to strive to become more knowledgeable over time and this group is predicted to grow by 17 per cent making up almost 12 million of the UK adult population by 2008.
Head Buriers
Around half of all UK adults (25 million people) can be described as ‘Head Buriers’. This group are both disinterested in and lack knowledge and confidence about financial services. These are key targets for established brands as they look for reassurance from financial companies that they recognise. There is much inertia among people in this group and many have inadequate financial provision. However, the size of this group is predicted to diminish over the coming years by seven per cent to around 23 million.
Laissez – Faire
The ‘Laissez – Faire’ group are not that interested in financial services but are confident in their choices. They are likely to stick with a brand or supplier that they trust – often non-mainstream niche brands and suppliers. These are also a potentially good target market for independent financial advisors. The group, currently numbering around seven million UK adults, will remain roughly the same size over the forecast period.
Predicted product and market activity to 2008
General Insurance
The consumer General Insurance market will grow 31 per cent and be worth £19 billion by 2008. Motor insurance is forecast to see a significant increase in internet claims and processing and although we expect the direct model to grow further, this growth will slow as this channel becomes saturated. However, 84 per cent of transactions are predicted to be made directly by 2008.
Internet Property Insurance purchases could see a five fold rise to 10 per cent by 2008 and this growth will be largely at the expense of face-to-face applications. Clearly a property market collapse would impact on the prospects for property insurance but looking forward we see a period of sustained growth. This predicted growth is not only driven by macro-economic factors but also by the growth in numbers of households and continuing high levels of fear about crime.
Unsecured Loans
The Unsecured Loans Market will see a 44 per cent uplift to over £303 billion by 2008. The Credit Card market has shown strong growth for many years, averaging 14 per cent growth in real terms from 1994 to 2003. The increasing use of the internet for purchasing a broader range of products from holidays to CDs, will also encourage the increased use of credit cards. A small cloud on the horizon is potential pressure from government to be more transparent over credit card charges. In recent years there has been a trend towards consumers actively searching for improved credit cards, rather than just responding to direct mail. In a climate of increasing interest rates, this trend may accelerate.
Protection Market
The Protection Market will increase 64 per cent to £1.6 billion by 2008. The mortgage term protection market is delicately balanced and a property boom will ensure continued growth while a housing crash could decimate it. The role of Independent Financial Advisers will be marginalized as the purchase of this type of product becomes the norm rather than the exception, thus reducing the need for reassurance from an adviser.
Life and non-Life Savings Market
After a tough 2003, the Life Savings Market will see solid growth in the coming years with a 41 per cent rise to a market valued at £26 billion. The Non Life Savings Market on the other hand will see the biggest and most consistent gains, rising 65 per cent in value to £205 billion. Unit trusts sales over the Internet will increase while face to face sales will decrease. ISA regulations and improved stock market performance are likely to favour investment ISAs over cash ISAs.
Mortgages
The mortgage market looks to have some uncertain times ahead. The market will be stagnant in 2004 and 2005, grow slightly in 2006 and 2007 before slowing down in 2008. Overall this market will grow to be worth £293 billion by 2008, representing a 19 per cent uplift with inflation, but only six per cent growth in real terms. The offset mortgage market also looks set to show strong growth however, the government may act to regulate what may be seen as a tax loop-hole that needs closing.
Health market
By 2008 the health market will increase 46 per cent to £5.2 billion. Growth in ‘pay as you go’ healthcare and improved perceptions of NHS could however knock the Private Medical Insurance market.
For further information about Forecasts Consumer Finance please visit www.morimarketdynamics.com
