Insurance companies have the reputation of being dull and grey, all offering much the same range of look alike products with similar features. However, one company that stands out in this staid world with the reputation for coming up with innovative products is Scottish Amicable European, the Dublin-based subsidiary of Scottish Amicable.
It was the first insurer to set up in Dublin and has launched a range of original award-winning products, and has won the Sherwood International Award for Product Excellence.
Sales and marketing director is 46year-old David Evans, who has been with the company since its inception in July 1994. He points out: “We decided to base the company in Dublin for several reasons. First, for the tax advantages: the funds are not subject to UK life fund tax and, because Scottish Amicable European does not sell its products to Irish nationals, escapes Irish tax as well.”
The only tax deducted on Scottish Amicable’s European investment funds is withholding tax, which is levied on dividends by some countries and may not be fully recoverable. Evans adds: “When we launched our first two products, whole of life and critical illness, we could price the premiums at a 20% discount compared to comparable UK products because of the advantageous tax position.”
Another plus its Dublin location offers is that it is easy to recruit good staff and there are no language problems. Initially, the downside was that it was difficult to get to Dublin, it used to be necessary to fly to London and switch planes. But that has now changed completely as Dublin has taken off as a financial services centre and it is possible to fly to Dublin from most major UK airports.
On a personal note the Dublin office has some disadvantages for Evans: “Our UK office is based in Fareham and I live close to it and have to admit I don’t see a lot of my family during the week.”
But he adds: “Weekends are sacrosanct and reserved for my wife, two sons and hobbies. My main hobby is walking with mountain biking a close second – I find both very relaxing after a tough week in the office,” he says.
In the office there is little time to relax. Scottish Amicable European has made a point of focusing on risk policies rather than savings. Its flagship product, which accounts for about a quarter of its total business, is its long term care bond. This has now attracted over 7,000 policyholders who have invested a total of 1.162 million.
“We took a long hard look at the market and decided that while most older people have some surplus capital, what they do not usually have is a surplus income. So it seemed a much better idea to launch a single premium bond rather than a regular premium facility,” says Evans.
Another drawback of some long term care products is that if you die without going near the door of the nursing home – as four out of every five people do – you lose out and the insurance company is the winner.
So Scottish Amicable European’s bond is different, it works on the basis that the policyholder’s home and other assets are protected.
If you die without needing care, your investment, plus or minus any growth/decline, less a deduction for the risk premium, is returned to your estate.
Another important consideration for the Scottish Amicable European team was to build in a facility to allow the policyholder to reduce their potential liability for inheritance tax. Its Gift Trust Scheme allows the investor to gift the long term care bond, while retaining the benefit of long term care cover.
Long term care is expensive so the cost of insurance policies is also high. But, in David Evans’ view, there is a tendency to overfund. The average weekly cost of nursing home care works out to atound £20,000 a year – about £400 a week, though in London the cost is likely to be nearer £500.
What is often not taken into account is that most people have some regular income – state and/or private pensions and could be entitled to state benefits like the attendance allowance when they go into a nursing home. So it is not necessary to fund for the £20,000 figure and, on average, policyholders have selected £ 12,000 a year which reduces premium costs.
The premium cost depends on which of the three options available under the bond is selected by the policyholder. Under the first option, Capital Growth, the whole of the bond, both the capital and investment growth, is protected and will not be used to pay care costs.
The second, Capital Reserve, protects the capital, but investment growth can be used to pay for long term care. Under the third option, Protection Select, both the cash sum and investment growth can be used to pay for long term care. But once the bond is exhausted, the company will continue tom pay the bills.
The average investment in the bond is £24,000 and the most popular option is the Capital Growth.
There is a withdrawal facility so 5% of the bond’s value can be taken out each year tax free and the bond can be encashed at any time, though there is a surrender charge levied in the early years.
Another high priority on the list when the bond was being designed was to ensure that the policyholders could get advice about the best care facilities available. However, Scottish Amicable European did not want to be directly involved in giving advice.
“We engaged Grace Consulting, independent care counsellors, to provide a service for our policyholders. We pay the bill, but the reports go directly to the client and we are not involved,” clarifies Evans.
Scottish Amicable European is the second largest supplier of long term care policies- with PPP taking the top spot. But so far the market has not taken off in any big way in this country – it is estimated that only around 30,000 policies have been sold since the concept first went live at the beginning of the `90s.
But Evans is happy with the flow of business and says growth so far this year is significantly higher than last year. The average monthly intake is now running at around £4 million, compared to £3.6 million last year.
The Royal Commission is due to publish its report on long term care by the end of the this year and this should, Evans hopes, heighten public awareness of long term care. He hopes it will lead to all local authorities acting on a level playing field and impose the same rules about using assets to fund care costs. Currently, there are wide variations between local authorities and their practices on funding long term care make the situation confusing for the public.
Targeting a younger market
“Our ambition now is to encourage people south of age 60 to invest in the bond,” says Evans. One step it has recently taken to encourage the middle aged to think about old age is to add a long term care option to its whole of life and critical illness policies. Its parent company, Scottish Amicable, has added a long term care option to its personal pension plan, available to those policyholders who take out waiver of premium benefit.
The cost of adding long term care protection to the critical illness policy depends on age. Taking a male aged 50 next birthday wanting £75,000 of cover, one of the best buy policies on the market costs £145.16, month. Scottish Amicable European’s monthly premium for the same cover is f,125.82 and adding in a level long term care benefit of £7,500 a year, the cost comes up to £155.99, or £186.10 monthly on an escalating basis.
“We believe there is scope to encourage more people in the 45 to 60 age group to consider long term care. An encouraging sign is that initially the average age of our new policyholders was 67, but it is now down to 64,” says Evans.
Evans is certainly putting his money where his mouth is – he has recently bolted on a long term care option to his critical illness policy. He adds: “I think it is essential that people think harder about long term care. The family set-up has changed dramatically, children move away from the family home and aren’t on hand to offer care. One in three marriages break up so there are more single people with no one to help them as they grow older. And more women work today, so don’t have time to fake care of elderly relatives.”
And Evans sees other opportunities for growth presenting. themselves in the near future. As a company, Scottish Amicable European stresses it is very much a pan-European operation. Its first objective was to focus on the UK market, but now it is developing in Germany as well. It has an office in Frankfurt and plans to market long term care products there – long term care is compulsory for Germans.
A circumstance which would have many insurers abandoning their staid images.