Middle classes and super rich see sharp rise in personal insolvencies

New analysis from Experian®, the global information services company, reveals a sharp increase in personal insolvencies among middle-class professionals and the super rich during 2009.

The analysis, presented to senior credit risk professionals from UK financial institutions at Experian’s Credit Risk Summit event in London, shows that the highest number of personal insolvencies occurred in Torquay, where 10 in every 1,000 adult residents became insolvent during 2009. Llandudno, Irvine, Falkirk and Skegness also saw high concentrations of insolvency, with around eight in every 1,000 residents becoming insolvent. Hamilton saw the biggest rise in insolvencies, from four to seven in every 1,000 residents between 2008 and 2009, an increase of 57 per cent.

The Global Power Brokers consumer type identified by Experian’s Mosaic classification saw personal insolvencies increase by 43 per cent in 2009. These types are highly educated and privileged people living in the exclusive areas of London such as Kensington, Chelsea, Regent’s Park and Hampstead. Likewise, there was a 36 per cent increase in the number of the financially successful people that make up the Serious Money group becoming insolvent.

Experian’s analysis of County Court Judgments further highlights the recession’s impact on the wealthy groups. While the number of County Court Judgments was down across the majority of consumer groups in 2009, the biggest increase was in the Serious Money consumer type, which saw its count of County Court Judgments increase by 12 per cent. Distinctive Success, highly educated, high-earning, middle-aged professionals, saw County Court Judgments increase by six per cent and Parish Guardians, typically lawyers, board directors, accountants and tax consultants living in picturesque rural locations such as South Woodham Ferrers in Essex, Pulborough in West Sussex and Nailsworth in Gloucestershire, saw a five per cent increase.

2009 saw a 41 per cent increase in personal insolvencies amongst Yesterday’s Captains – retired, middle-class couples and widows living in area such as Solihull, Cheadle and Cardiff’s Whitchurch district on final salary pensions or from investments in companies they once managed. There was also a 38 per cent increase amongst Hardworking Families – older married couples typically employed in mid-level administrative positions within organisations where they have worked for many years. There are high concentrations of this consumer type in the Kidsgrove and Alsager areas of Staffordshire, Coalville in Leicestershire and South Benfleet in Essex.

Despite the sharp increases in personal insolvencies and County Court Judgments amongst more affluent groups, the majority continued to come from consumer groups living in former council housing who have stretched their finances attempting to emulate more affluent lifestyles.

The Legacy of Labour consumer group, typified by older people living on limited incomes in the council estates of Northern and Midland industrial towns such as South Shields, Walsall and Sutton-in-Ashfield, saw the highest count of personal insolvencies (10,751) during 2009, 10 per cent more than during 2008. Legacy of Labour also received 43,675 County Court Judgments during 2009, the most of any group. Stressed Borrowers, a low-income group of family heads living on former council estates in areas of southern England like Croydon, Crawley and Bracknell suffered 9,321 insolvencies during 2009, up by almost six per cent on 2008.

Only Military Dependants, people serving in the armed forces and their partners, saw a significant drop in insolvencies (down 21 per cent) during 2009.

Phil Cotter, Managing Director for Credit Services at Experian, UK & Ireland, commented: “Our analysis shows that the recession impacted all sections of society, with the most exposed becoming insolvent at a higher rate than ever before. Groups that had come to rely on manufacturing and low-skilled service sector jobs have been hit the hardest, but the biggest increases were amongst the UK’s most affluent and successful consumer types.

“Predicting risk in consumer lending has become more complex, with accounts once correctly considered medium to low risk and profitable increasingly entering collections due to the changing economic climate. Lenders need to ensure that their credit risk and collections capabilities evolve to enable the most responsible and sustainable lending decisions. Our analysis underlines that it is vital to obtain a thorough understanding of each and every customer throughout the credit lifecycle, including the total value and risk they represent, as well as how they are exposed to changing micro-economic conditions.”

Source: creditMan.co.uk