Since the government decided last July that it would not pay for personal care, long-term care (LTC) insurance providers have been proclaiming that their market is set to take off. But sales figures suggest the opposite. A new report by Datamonitor has found sales of LTC insurance fell by an average annual rate of 0.6 per cent between 1995 and 2000.
James Allingham, an analyst and the author of the Datamonitor report on UK Health Insurance 2001, gives three reasons for this decline: “LTC insurance hasn’t captured the public’s imagination, there’s widespread lack of awareness of the benefits, and the product is costly.”
For these reasons and others, many insurers that have been reluctant to dip their toes in the prefunded LTC market are sticking to their guns. And independent financial advisers (IFAs) have also found the product is flawed.
Even LTC providers admit there is a problem. A typical view is voiced by Age Concern Financial Partnerships technical manager Chris Ellicott, who agrees LTC hasn’t sold well, blaming “uncertainty” in the market. But he, like other LTC providers, expects things to improve.
He says: “The government has been generous in saying it will pay for nursing care but you have to pay other bills yourself. Now that there’s a degree of certainty, in our experience things are moving on and extra sales are coming through.”
But other insurers that are not LTC players are more cynical. Swiss Life technical manager Bob Cheesewright says: “Frankly, I’m not surprised LTC hasn’t taken off. It’s badly designed and doesn’t address the needs of the public effectively.”
LTC products are “unexciting and unattractive”, according to Unum marketing manager Eugene McCormack. “People don’t like the thought of spending money on something that alleviates difficulties of the last two years of your life in a nursing home,” he says.
Standard Life Healthcare managing director Mike Hall feels uncomfortable about the idea of selling a product where there is a likelihood of inadvertently misselling to a client.
Hall says it is easy to construct a product for Scotland, where the government has said it will pay for nursing and personal care, but south of the border the situation is still not clear.
“There is a risk of misselling if you sell a product before knowing what the government will ultimately pay for,” he says. “Benefits might be free by virtue of the taxpayer, in which case customers are going to want their money back.”
Uncertainty about what exactly the government will pay for is also keeping Scottish Equitable Protect from entering the LTC market. Marketing manager Heather Armstrong says: “Until it is stabilised we will keep reviewing it.”
Although Paul Smee, the director general of the Association of IFAs (AIFA), thinks LTC insurance is an integral part of retirement planning and any IFA ought to factor it when advising, he thinks the odds are against increased sales. “It’s logical that people won’t want to take it out because the contingency margins are too remote – only one in four people actually needs it,” he says.
So we should not be surprised that some IFAs admit their lack of knowledge about this product. Mathew Brown of Argent Consulting says: “I could probably write down on the back of a business card the amount I know about it.
“I understand the concept that it looks after elderly people in their twilight years and it seems to do what it says on the tin. I would consider advising on it but I need more information.”
Caroline McQuade, an Inter-Alliance financial practitioner, advises on LTC but explains many advisers can be put off because it is complex. IFAs have to understand the difference between the prefunded and immediate-needs products. They also need knowledge of definitions of “activities of daily living” (ADLs) and familiarity with regulation such as The Community Care Act.
McQuade says older people still (wrongly) think the state will look after them and younger people don’t want to think about their future, especially if it means picturing themselves as old and infirm.
This seems to be a common reason for the slow uptake. Hughes Carne director Keith Jarman says his clients are of a younger generation.
But he knows the issues involved and how to advise customers. He says: “I discuss it with my clients as it’s a standard part of the fact-find exercise, so they are aware of it.”
Frank Cochran, the managing director of Wolverhampton-based FSC Investment Services, says he has sold only a dozen or so LTC insurance policies over the last 12 months because his clients dismiss it as being too expensive.
He believes he might be able to sell more if insurers didn’t bump up the price with charges. But he says: “I wouldn’t mind taking a cut in commission to make the contract cheaper. That might be a way round it.”
Holden Meehan director Amanda Davidson says many of her clients would rather self-insure to cover LTC. “It’s about prioritising their arrangements. Whether or not someone needs LTC is an uncertainty,” she says.
Although Brian Lentz, the principal at Portfolio Insurance Consultancy, does not sell “bucketloads” of LTC, he accepts there is a need for these plans. But he has two concerns.
The first is that prefunded care documentation is “very unclear”. For example, for a claim to be paid the client has to fail certain ADLs not only with an assisted device but also with the help of another person. He acknowledges there is greater flexibility in the market and a number of providers are addressing this problem.
His second concern is that LTC ought not to be only for the grey market. It should also cover the inability to look after yourself, if for example a 25-year-old has suffered a horrific motorcycle accident and needs care for the rest of his life.
Lentz believes a critical illness (CI) plan with LTC options built in is the way forward because the ADL requirements are far easier to claim than under than their LTC counterparts.
Universal Provident caters for exactly this type of market. Managing director Jon Pardoe says: “We need to get away from the negative connotations of LTC and old age. Our product is similar to CI where it would pay out if you were unable to work for the rest of your life if you cannot perform some ADLs. And it’s more cost effective because it’s taken out at a younger age.”
According to Universal Provident, the average age a person would take out this cover is 39 years whereas for a conventional LTC policy in the UK it is 64 years.
Skandia Life has recently extended its CI insurance to include life and LTC cover. Marketing manager Shelley Robertson says if the client wants to change the policy into LTC there is less hassle because there would be no change to the premium or additional underwriting.
She says: “We think it will make a difference but at the moment people are buying life cover knowing they can change it to LTC in the future.”
An improved number of IFAs are becoming more confident about the issues and selling the product this way, but she acknowledges it is still difficult to sell to people in their 50s.
She says: “They prefer to think of retirement as golden and ending by them dropping down dead while gardening or on the golf course, so it’s quite a subject for an IFA to tackle. People tend to think about buying LTC after retirement.”
McCormack suggests addressing the gradual onset of the need for LTC, where an aged person’s physical state deteriorates over time.
“There ought to be specialist provision of services to help people in their own home, like shopping, transport and maintenance services. With current LTC products, if you fail three out of six ADLs you get a payout but that doesn’t sort out the problem,” he says.
It seems the LTC market is in need of a shake-up. And with so many ideas for moving the market forward, advisers and their clients will be disappointed if nothing materialises. The question is, are insurers brave enough to make these radical changes?