With sales of long term care insurance still low, Paul Robertson asks what the market is doing to help raise awareness of the sector
Nobody would claim the pre-funded long term care (LTC) insurance market is a dynamic one at the moment. The latest Association of British Insurers (ABI) figures show only 1,971 annual premium policies and 1,020 single premium policies were sold in 2001. This compares with 1,846 and 687 policies respectively for 2000, although the ABI admits that one company submitting data for the first time boosted 2001's figures.
So why is the market so sluggish? After all, the immediate needs market is growing rapidly and sales of this type of insurance are healthy on the Continent.
Richard Walsh, head of health at the ABI, says: 'In Britain we have had problems in this sector. However people's main concerns here are financial. Whereas in France, for example, the market is more driven by concerns over the standards of care available for elderly people, which in the State sector can be poor.'
Owain Wright, head of the Care Funding Bureau, points out that pre-funded insurance makes up less than 5% of his business, and believes the market suffers from being a bad news subject.
'The majority of the population just ignores it as a topic. In addition, once you get the small proportion that will consider these products interested, you have the hurdle they are perceived to be expensive. It is a question of persuading clients that it is actually value for money,' he says.
Opening new doors
Others think the intermediary market could be a little more pro-active in looking at these products as revenue. Brian Fisher, long term care marketing manager at AXA Lifetimecare, is one.
He says: 'Talking to a lot of IFAs, I often hear sales are held back by the depressing nature of the product, and I am sure there is some truth to it, but I also know many intermediaries are reticent to take on this area of advice because they think it will be too complex, which, of course, is not necessarily the case.'
It is also often the case that those considering this form of insurance may have enough in cash to self-pay. Wright says: 'Intermediaries are not here just to sell insurance, it is just one of the options we will look at when considering a person's needs. However, some will opt for insurance anyway, just to cover the risk for peace of mind. Generally, clients will be financially aware and many may also use savings to create an income stream for regular premiums. This way you do not reduce capital, or general income.'
Sluggish or not, no market stands still and the LTC market in general has benefited from the Government clarifying what benefits are available, and in what regions, early in 2001.
Paul Casey, spokesperson at GE Frankona Re, explains: 'To design a plan that delivers benefits at a price, insurers need to know what benefits they need to deliver. The unknown up to the early part of this year was what benefits would actually be delivered by the State, when would someone be eligible for long term care and when not, and if you did qualify, what sort of benefits would they be eligible for? This has now been clarified but the situation is still complex because Scotland, Wales, Ireland and England will each deliver differing benefits.'
Walsh agrees, but points out people still have the wrong impression in some parts of the country.
'The most difficult regional variation now is in Scotland where many people are assuming the Scottish Parliament will pay personal care costs as well, which is not the case,' he says.
More recently in October, the ABI reissued a statement of best practice for the sale of LTC insurance. All ABI member companies must comply with the statement. Naturally this list would only include insurers, but there are elements which will affect the intermediary market. The statement requires that all insurers 'provide adequate training for all employees and representatives who advise on, or sell, long term care insurance.'
It is section 1.5 that concerns intermediaries directly. It says when deciding whether to sell LTC insurance through an intermediary, member companies must consider whether: 'the intermediary complies with the statement or has signed up to the voluntary jurisdiction of the Financial Ombudsman Service.'
However, it adds: 'although failure to comply with the statement or sign up to voluntary jurisdiction shall not in themselves be reasons to refuse to deal with an intermediary.'
The statement is, of course, a stop-gap until the entire sector comes under Financial Services Authority (FSA) control in 2004, when it will be superseded. The statement is likely to have an effect on the market. Fisher says: 'Overall this statement will bring standards up among IFAs. When the FSA takes control in 2004 advisers will have to include long term care planning in their advice. This document should work as an alarm bell for IFAs who do not currently deal with this sector to maybe take a look at it. If it going to be regulated it should eventually turn up in the FPC exams, rather than in the AFPC exams where it sits at the moment.'
For others it is a case of too little too late. Wright, although an IFA, would wish for something a little more binding on the whole industry.
He says: 'I do appreciate what the ABI are trying to do but they have little reach other than within the insurance companies, but in the majority of cases it is not insurers giving the advice.'
He adds: 'We were promised proper regulation years ago but it has been beset by delays, the last being waiting for the European directive finally signed in September. At the end of the day what is more important, the protection of a vulnerable section of the public or getting every 'i' dotted and 't' crossed? We will remain largely unregulated until 2004.'
Authority introducers
There is a possibility of local authorities acting as introducers to IFAs over LTC funding in the future. Although no scheme has been announced publicly, the ABI believes the plan involves an authority acting as introducer for an insurance company and referring interested members of the public to an IFA. The authority would be able to have a panel of IFAs, which insurers are not allowed to do.
If the person, having seen an IFA, decided they wanted to take out a policy then one option would be a policy arranged with both the local authority and the company it has a contract with. The policy would be tailored so that instead of the buyer paying a premium and receiving a pay-out which may or may not meet all costs, it would guarantee to meet the costs of care in the geographic area of that local authority.
The money would pay out direct to the local authority, which would negotiate a price with a home. The individual would have a choice of the local homes, if they did not like the choice then they could still get their money and go where they wanted, but would loose the guarantee of the funds being totally sufficient for their needs.
Walsh admits there is a local authority close to finalising such a scheme and is close to going public. However he will not name it. 'I cannot name it because, as one would expect, there are a lot of political issues involved, being the first to raise their head above the parapet as it were, and needing to ensure that the scheme gets a reasonable welcome from central Government. This has been a protracted process, but new products, especially innovative ones, always are.'
On a more peripheral note, local authorities are going to have to pay the NHS if someone is fit to leave hospital and yet there is no LTC place available. Councils will have to pay hospitals £100 to £140 per day for every discharged patient that cannot immediately be moved under the community care (delayed charges) bill.
Fisher believes the effect this will have is to raise the profile of the sector among the public. 'Most legislation that comes in is for those with no money. Those who buy long term care insurance are not those with no money but it heightens awareness, which is what sells any product,' he says.
