The long-term care market effectively disappeared in the early 1990s. But is it about to re-open and how should IFAs approach it? Stephanie Spicer reports
Both IFAs and providers are currently heralding the arrival of a growing long-term care (LTC) market.
Yet insurers are cautious when elaborating what sort of products might populate the market in the future.
Advisers specialising in the market, which massively shrank in the 1990s due to lack of sales, warn their peers not to think they can leap too readily onto the care insurance bandwagon.
As with much in the financial services market, education for the masses is a key clarion call.
It would be hard to imagine any other sector of the personal finance industry getting more news headlines to attract attention to it than LTC is getting at the moment, thanks to Southern Cross and other horror care stories that abound.
For advisers not convinced of the potential of the market, the statistics are hard to avoid.
The recent Organisation for Economic Co-operation and Development (OECD) report Help Wanted?
Providing and Paying for Long-term Care, said: "OECD countries will continue to age, leading to unprecedented shares of their population being 80 years and over.
"In 1950, less than 1% of the global population was aged over 80 years. By 2050, this share is expected to reach 4%.
The most important increase is expected for the OECD countries, where by 2050 almost 10% of the total population will be very old (compared to 1% in 1950)."
In terms of costs, the report assessed, according to the 2009 European Commission projection scenarios, that public LTC spending as a share of GDP is expected to at least double by 2050.
"LTC expenditure is expected to fall in the range of 2.2 to 2.9% of GDP in 2050, relative to about 1.2% in 2007," it read.
GETTING PROVIDERS ON SIDE
A market worth potentially £4bn is worth looking at. This is the value placed on business, which could be generated from the 40% of self-funders alone in receipt of social care who would find an annuity both beneficial and affordable, according to Partnership.
For advisers and clients, however, LTC products are pretty thin on the ground at the moment, comprising only of Friends Life's Immediate Lifetime Care Plan and Partnership's Immediate Care Plan and Deferred Care Plan.
The latter recently launched its Care Plan Payment Option, which funds people wanting care at home.
But insurers, who a few years ago would have answered the question about re-entering the market with a loud ‘no', are now more open to the idea.
Oliver Thomas, director of Bupa Care Homes UK, is typical of most providers in raising the Dilnot Commission and its recommendations as a guide on where the market will go.
Bupa had previously run a pre-funded LTC product and an immediate needs one.
He said:
"We know from our own previous experiences in LTC insurance that people don't buy such products if they don't think they'll need them. If the Dilnot Commission recommends that insurance be part of the funding solution for England, then conditions must be right for insurers to develop new and affordable products that consumers want to buy."
Meanwhile, Gary Burchett, retail strategy director at Legal & General, believed there will be an increasing customer need for affordable LTC funding solutions.
"We are interested to see whether the Commission's findings lead to the development of options that enable us to work in partnership with government to develop solutions that effectively meet customer needs," he said.
Certainly, what we would expect from insurers are some imaginative solutions to the myriad LTC scenarios any individual may face.
Peter Hamilton, protection management director at Zurich UK Life, emphasised that until it is clear what the state will provide, there is unlikely to be much of a market for any kind of LTC insurance.
"The private sector will not want to take on an uncapped risk. The state might provide basic provision and cover ‘catastrophe' risks, with insurers providing some sort of top-up," he said.
As for whether Zurich has a specific product in the pipeline, Hamilton pointed to a more flexible approach to addressing future care needs.
"It depends on how the market shapes up. We may see some relaxation on how pension benefits are taken financial needs clearly change as LTC needs emerge, and so level annuities aren't necessarily the best fit''.
Building on changes to existing savings mechanisms may ultimately be more practicable than a separate LTC insurance scheme.
"That said, there may be opportunities to create some kind of conversion options for life or critical illness policies."
Is it inevitable that demand for LTC insurance will grow? Hamilton said:
"There's no doubt that care is one of the most pressing issues society faces. We're living longer, but not necessarily in good health and how we finance that is becoming an increasingly pressing question.
