Defenders of the state welfare system may be pleased that a combination of the flu crisis and the eloquent criticisms of healthcare funding made by Sir Robert Winston have worked to win extra monies for the NHS. Others, however, seem to believe that what is given with one hand will be taken away with another.
Long term care (LTC) insurance providers fall firmly into this second camp.
They are already exasperated with the lack of government action in response to the findings of the Royal Commission set up to examine LTC funding. And now they believe the recent spate of headlines detailing NHS funding deficits seems likely to further delay – and minimise – any announcement on the subject.
Alistair McDonald, deputy actuary at BUPA, sums up the mood: “The bottom line of any response to the Royal Commission’s recommendations is resource – and when there is anything else clamouring for funding, there is less for LTC.”
However, after so long – and so many false starts – on the road to a clear government strategy for LTC funding, it seems few in the industry are perturbed by this latest turn of events. After all, a recent set of rumours had an announcement on the issue scheduled for this month, while the first batch suggested that the matter would be to the fore when parliament resumed at the start of the year. Now the smart money is on watching for commitments to LTC set out in the public spending budget that will be published in July.
But confusion is not restricted to the timing of any announcement. Towards the end of last year, Royal Commission chairman Sir Stewart Sutherland gave a speech in which he attacked the “fliers” on policy that have emerged in the media before being denied, or ignored, by ministers.
The first of these, he said, suggested a three month moratorium on the sale of houses before LTC costs needed to be met. The second pointed to the level before means-testing on assets was introduced being raised to £60,000. The most recent story alluded to care being provided free after four years of means-testing.
Sutherland was equally scathing of all these options – none of which he believed gave the dignity in old age that the Royal Commission believed its solution offered.
With so much misinformation about, LTC insurers are being careful not to muddy the waters further with firm predictions as to what is the most likely government action.
“The one thing that is for definite is that it is not going to be free care for everyone – that’s what the government told the Royal Commission it had to work within,” explains Paul Bennett, communications manager at PPP lifetime care. “But we still need clarification on where the line is going to be drawn; what the state will pay for and what the individual will have to pay for.”
George Andrew, marketing manager at Scottish Widows, adds: “The government has already done a few things, such as addressing national care standards and tightening up access to local authority funding.
“Alan Milburn has now said he will be speaking to the industry to see if LTC insurance has a part to play in the solution.”
Peter Gatenby, general manager at Age Concern Financial Services, comments: “A lot of people keep saying that the government is looking at this and looking at that. My view is that they are happy for the rumours to go around; and that until there is a national disaster or horror story they will not feel the need to do anything – although I suppose they may have to before the next election. Not that I noticed any party taking the issue seriously before the last election.”
But what does this all mean for the market? While some insurers insist that a lack of clarity on the issue of funding is causing stagnation, others, and many intermediaries, believe this is simply an excuse.
Gatenby explains: “There are not millions and millions of older people out there waiting for the response to the Royal Commission. Personally I would be surprised if many of them knew about it.”
Philip Spiers, partner with the Nursing Home Fees Agency, adds: “People are not waiting to see what is going to happen – our inquiry rate is actually increasing.”
So why then is the number of policies sold not increasing more rapidly? After all, insurance providers are doing everything in their power to alleviate the problems of the current uncertainty.
At PPP this takes the form of a charter linked to the main recommendation of the Royal Commission, ie, that personal care should be provided free, while living costs should be considered on a means-tested basis. Through this, PPP suggests that people take out the amount of insurance they need to cover themselves under the current system, but guarantees the flexibility to move in line with future legislation without penalisation.
At Scottish Widows, extra incentives are available on its with profits bond if customers choose to take out LTC insurance at the same time, while BUPA has launched an immediate needs plan in response to the government’s delay, designed to help those who can no longer put off the issue.
Intermediaries too agree that there is little more to be done on the product development front at the moment. Instead, according to those who are having success in this sector, the problem lies in the level of public awareness of the product; the number of intermediaries who actually sell it; the methodology of the sale; and the price.
Gatenby again: “The last time I spoke to a group of IFAs I told them that if they were expecting magic solutions they could forget it. It is up to them and the insurance companies to increase sales.”
He believes that only two or three per cent of registered intermediaries are actually selling LTC products in any meaningful way.
He explains: “There are other aspects of the business which are more lucrative. But additionally, some IFAs have it in their minds that selling LTC is difficult. But the word they should be using is different. It is not like selling a with profits bond. The trouble is that the majority of IFAs do not sell protection to older people apart from inheritance tax protection.”
He believes that many IFAs are put off as they have to become involved and understand the finer details of disability and activity of daily living tests. However, he adds: “Any IFA that doesn’t speak to their client about the effects of LTC funding when they are doing financial planning is not doing their job properly.”
Spiers agrees that a different approach to the sales process can make all the difference: “The products are being sold on the back of the client’s fear of losing assets. But I believe it should be sold as enabling people to be independent and in control of their choices – rather like health insurance is.”
However, also like health insurance, for the market to be developed further, there is a need for increased public awareness of the products available and the choices they offer.
Recent research by PPP lifetime care has shown that increasing numbers of older people are aware that they may have to do something to provide for themselves. And, although a majority of people would like the state to pay for their care, only nine per cent now expect that to happen.
Bennett adds: “It does seem that awareness is very high. Things are certainly moving in the right direction.
Gatenby, however, is sceptical that enough is being done: “I know some of the research recently has shown that awareness of LTC issues is growing – but I don’t see how this can be the case when there has been no mass media about it. I would imagine that the majority of older people have not thought about it.”
But even if these issues are overcome, the problem for the majority of older people is the cost of LTC insurance. At Scottish Widows, Andrew was pleased with Alan Milburn’s recent suggestion that LTC insurers could provide part of the government’s solution. But he believes that for this to be possible, premiums will have to fall – something that may only be possible with incentives for public/private partnerships.
Gatenby too sees a need for products which are targeted at those within a lower income bracket than is currently the case, while Spiers identifies cost as one of the main problems. “So few people can afford it,” he says.
But not being able to afford the solution does not mean that the problem will go away, a lesson which this government will have to learn – and address – if it wants to avoid LTC funding developing into another welfare crisis in the future.