OREANDA-NEWS. Direct premiums written (DPW) for U.S. credit insurance has dropped 21% since 2006, to $3.8 billion from $4.9 billion, according to a new A.M. Best special report. Much of the decline has come from the U.S. life/annuity (L/A) segment, as effects from the challenging economic environment have led to stagnant wages, a declining personal savings rate and skyrocketing student debt balances. These factors in combination with the ongoing trend toward debt cancellation products written by non-regulated entities such as banks have been effectively replacing credit insurance. On the U.S. property/casualty (P/C) side, trade credit insurance has been a driver of a premium uptick; however, credit insurance remains an ancillary line at most P/C companies.

The Best’s Special Report, titled, “Stagnant Wages & Household Debt Make Their Mark on the U.S. Credit Insurance Market,” states that the L/A segment’s total credit insurance DPW declined to $1.8 billion in 2015 from $2.9 billion in 2006, a 38.7% drop. Similarly, within the P/C segment, credit accident and health (A&H) DPW declined 65.2% since 2006, and in that time, the allocation of total credit A&H DPW has fallen from one-quarter in 2006 to 8.3% in 2015. However, other forms of credit insurance within the P/C segment have increased 31.4% for the same time period.

The L/A segment has seen its share of total U.S. credit insurance DPW decline to 47.1% in 2015 from 60.8% in 2006, due to a growing percentage of premiums that shifted toward the higher-margin P/C products since 2010. The increase in trade credit insurance premium mainly has been fueled by more opportunity for growth, as penetration in the U.S. market is low compared with outside the United States. With competitive pressures increasing, companies have been focusing on increasing their direct sales forces, expanding marketing and distribution partners, as well as expanding offerings to grow the business and boost policy retention. The report notes that U.S. credit insurance accounts for less than 1% of premiums in each major industry segment.

Consumer lending trends appear to be bucking trends seen in the U.S. credit insurance market. More than 43 million Americans owe a combined $1.2 trillion in student loan debt as of the first quarter of 2016, an exponential increase from just a quarter of a trillion dollars back in 2003. Overall, U.S. consumers have reduced their indebtedness by $1.5 trillion from $12.7 trillion in 2008 to $11.2 trillion in 2013, before an uptick back to $12.2 trillion as of the first quarter of 2016. Additionally, the number of auto loan accounts has risen 21.5% since 2012, and the number of credit card accounts has increased 13.6% in that time. However, credit DPW did not follow suit with the rising debt levels and growing number of accounts since 2013.