Since CGU launched the first recognised long term care insurance (LTC) scheme back in 1991, the product has certainly not had the easiest of infancies. Dogged by issues of high cost, low public awareness, and lack of regulation – debated recently by the Lords – LTC has never been able to boast particularly high sales. Add to this the fact that the government is still yet to respond to the Royal Commission, which reported its findings in March 1999, and it’s hardly surprising the industry is cautious when approaching the product.
“IFAs are wary of giving advice at the moment because there’s so much uncertainty about what the government intends to do,” says Scottish Widows marketing manager George Andrew. “Many providers are also waiting to see what happens before they design any major new products, so they can fit in with whatever ministers decide.”
Specialist LTC broker Philip Spiers, of the Nursing Home Fees Agency, has a similar view about the current state of the market. “With so much doubt about the government’s position on LTC,” he says, “the industry isn’t really pushing the product or educating the public about its value.
“This means that, while you get a few individuals who are positive about LTC and know exactly what they want, the vast majority of people are just window shoppers.”
In addition to all the well-publicised problems that LTC faces, insurance companies and intermediaries have another, more fundamental, hurdle to overcome. An ageing population is in need of care right now, and, whatever the government decides, it will almost certainly not be able to find the £1.2bn a year that the Royal Commission believes is necessary to support long term care in this country.
Research figures show the huge burden the LTC industry might have to shoulder in the first half of this century. At the present time, around 95,000 people a year need LTC for the first time. On a global scale, there are now more than 66m people over 85; by 2050, there will be around 370m – that’s more than quadruple the amount of people in the space of less than two generations.
In the UK, actuarial figures estimate that, in around 30 years’ time, there will be more people aged 65 and over than there are under 20, and, while the general population will have grown by 50 per cent, the number of over 85s will be up by 135 per cent.
These figures speak for themselves, showing that LTC providers have little time to waste. And many are already forging ahead with new LTC products – in spite of the dithering government in the background.
One such company is Age Concern Financial Partnerships (ACFP), which, in partnership with CGU, has recently launched an immediate and a future care plan. As you would expect, ACFP director and general manager Peter Gatenby is rather more upbeat about LTC than most, dismissing the idea of a quiet market.
“Since we launched our products, the quotation activity has been phenomenal,” he enthuses. “And while, at the start, some of it must have been IFAs trying us out, the enquiries have kept on coming.
“In terms of business written over the last few years, I’d say the immediate product market has been growing because IFAs are building up relationships within the sector. The pre-funded market has stayed relatively static for exactly the opposite reason there’s very few IFAs actively selling the policies. Brokers would probably give the government’s stalling as the reason for this, but I’d say it’s probably because they’re selling well enough in other areas to be able to leave this difficult one alone.”
Perhaps the main talking point about ACFP’s new products – apart from the 20-25 per cent reductions on CGU rates – lies in its softening of the activities of daily living (ADL) criteria. And Gatenby says he is interested to see if other providers follow suit.
One of the ADLs on CGU policies was moving around on level surfaces which effectively meant that if someone could shuffle from one room to the next, they would not fail the ADL and could not claim. Likewise with the washing ADL: ACFP has removed the `washing by any other means’ proviso, meaning that if someone cannot take a bath or shower they will now fail the test.
But the most significant change is that, rather than having to fail an ADL every time, a person now only has to fail “on most occasions”. This will mean that if someone can get dressed, but the effort is so much that they can’t do anything else for the rest of the day, it will still count as a fail.
Welcome though this move is, at the moment, policies require even greater levels of flexibility to tempt the public. Until the government gives some sort of reply to the Royal Commission, people currently buying LTC require plenty of leeway. In many cases, this has translated into a move towards regular premiums, as opposed to single ones, which allows people to stop the contract if they don’t need it, or to increase or reduce the premiums as necessary.
PPP lifetime care has introduced a charter that allows its policyholders to amend their cover levels depending on what happens in the future. LTC marketing manager Paul Bennett explains: “We have designed our LTC products to be as flexible as possible, and the charter gives people the option of upgrading or reducing their benefits should the government agree to pick up part of the LTC tab at a later date.”
Many other providers have also issued commitments that they will pay appropriate refunds if the situation changes and people need to downgrade their cover – which perhaps begs the question: why aren’t more IFAs advising clients on LTC now?
This is particularly pertinent as, even when clarification is in place, financial generosity is unlikely to be-meaning providers will still have to convince people to make their own provision. So what are insurers doing to alter the `unattractiveness’ of LTC, which has always been seen as an old person’s product?
“No one has successfully tackled selling people LTC at around the time they retire, which is exactly when they start thinking about their future financial planning,” says Gatenby. “The problem is that LTC has always been positioned as something sold to older people, but people in their 60s now aren’t old like in the past – they’re retiring and going on to live active lives.”
To appeal to this `younger’ retired audience, ACFP has changed its marketing approach for its new LTC products. Rather than the traditional nostalgic, fuzzy images showing a gentle slide into old age, the new literature depicts the product as something that people can sort out and then get on with their lives.
Providers are also aiming products at a literally younger audience to lessen the huge cost implications LTC can have for older clients. “Targeting people earlier in the lives is a natural progression of the market,” says Bennett, “but someone of 40 will always have too many other things to think about for LTC to become a top priority.”
While Gatenby believes that people should start planning for their future as soon as they can, he too doubts that people in their 30s and 40s will ever become a significant factor in the LTC market. “At that age you’re still concentrating on filling up you pension fund,” he explains, “and you have to question how interested people are going to be in something when the earliest they might possibly claim is 40 years away.”
One way BUPA Health Assurance has tailored LTC for a younger audience is by offering a LTC extension to critical illness cover (CIC) or income protection (IP) policies that starts after retirement. “This will help ease the financial burden and loaded premiums that older people face when buying LTC,” says national sales development manager Sue Wilkinson. “Rather than having to find a huge one-off premium, people will be able to convert their existing policies into LTC and carry on paying slightly higher rates.”
Norwich Union’s customer proposition manager for retirement solutions, Martin Chapman, says he welcomes this widening of the LTC market, but is unsure whether IP and CIC are particularly good products to link with LTC. “I just don’t think people can relate to LTC at a younger age,” he says. “We offer our clients two other possible links: equity release or investment bond. The equity release scheme is particularly appropriate considering the value of housing in the UK at the moment, and means people don’t have to sell their house outright to pay for care. The investment bond offers an each way bet: you pay a single premium and if you don’t need care – that is, you die – the money is refunded; if you do, your care is paid for. We’re aiming this product at someone who might take out a normal investment bond in their mid-50s to build up some capital growth. If that person ends up needing care, they will lose all the money on care costs, and I don’t think it’s a huge leap of faith for IFAs to change the message of LTC to one of capital protection.”
So, the LTC market is taking a few tentative steps forward, in spite of the ever-evasive government. Optimists predict some sort of ministerial comments on LTC around the time of the comprehensive spending review in July, which should, at least, clarify exactly what the market can expect as it moves towards maturity.