Long term care (LTC) insurance products will remain niche in spite of a growing need unless people are forced to buy them, the OECD said.
According to the OECD's report Help Wanted? Providing and Paying for LTC, there are only 40,000 LTC policies in force in the UK, equivalent to just 0.05% of the over-40 population.
Theoretically, the financial uncertainties surrounding the potential need for LTC creates a "powerful rationale" for LTC annuities, the report said.
However, a variety of factors including lack of consumer awareness, other financial responsibilities and mistrust of financial products will hold back sales of LTC products, the OECD says.
"Even in countries where public LTC coverage is less comprehensive, people continue to rely predominantly upon out-of-pocket payments," the report said.
The OECD said government initiatives promoting private LTC provision (ranging from improving the quality of products, reducing their price or harmonizing them with public provision) have only achieved "limited" success in improving access to the products.
Specifically, the report said tax incentives to promote private LTC protection "should be considered carefully in terms of effectiveness" as these can often end up benefiting those who would have bought protection anyway.
The OECD recommended group LTC insurance as an avenue for promoting protection, but noted this can leave people who move jobs regularly or are self-employed exposed to risk.
"Private LTC pooling mechanisms will remain niche products, which principally serve the segment of the population with relatively higher income and accumulated assets," the report said.
"The market could potentially expand as younger generations become better aware of the financial risk associated with LTC based on the experience of their elders, and become more comfortable with LTC insurance products and their underlying features.
"Nevertheless, unless mandatory, any expansion of the voluntary market will be subject to perennial supply and demand issues inherent to private coverage."
Chris Horlick, managing director of care at Partnership, said: "In the UK the principal reasons why the LTC insurance market has not developed has been a chronic lack of consumer awareness about what the state will pay for and what costs the consumer will be expected to meet.
"This is matched with a chronic lack of awareness of the costs of care, how long people will live in care, where to get appropriate financial advice and which products are available to meet the costs of care.
"The Dilnot Commission will at long last provide the clarity that consumers need to plan for their care and this will play a significant role in the growth of any future market for LTC insurance."
