Old age can be a time of acute misery. Even for the wealthy it can mean the bleak prospect of losing a treasured home, of going into care and seeing assets swallowed up in the costs.
Long term care insurance was designed to alleviate some of this pain. A range of policies can either provide immediate needs cover, protect assets or be linked to an investment. But despite this, long term care has not taken off in the way it was predicted.
At the end of last year both BUPA and PPP cut the number of people selling their product direct. BUPA commented: “The growth in demand we expected at the start of the year has not materialised.” PPP made 19 staff redundant and say they have repositioned existing sales staff to focus on intermediaries.
But few intermediaries are long term care experts. They have not had the opportunity to become so because so few policies have been sold.
A vicious circle
PPP lifetime is the market leader, having sold some 15,000 policies. It has by far the most experience, with over 200 claims. But as director and actuary Peter Gatenby admits: “Very few IFAs sell more than a few long term care policies a year, but they need to understand it is a specialist area to sell protection to older people. A long term care policy is not like a general insurance product, it could take hours to sell.”
But whereas experience is required to sell this product, lack of sales means this experience is hard to come by.
Gatenby believes PPP lifetime will increase sales through providing branded products for other insurers. This will be boosted by its specialist care support helpline which is already used by other insurers such as Scottish Widows.
Other insurers, such as BUPA, also offer expertise. It provides practical help as well as cover to its policyholders, and recently linked up with Skandia to launch the Royal Skandia Care Account. This enables people to set aside a lump sum, and if care is not needed, the account can be cashed in at any time. BUPA recently emphasised its commitment to care for the elderly through its purchase of the Care First nursing homes chain for £273m.
While insurers see the market expanding, it seems likely the number of those able to sell it will reduce. Currently, long term care is an unregulated product. This had led to calls from the Office of Fair Trading that it should be subject to strict controls.
Ted Yeates, a consultant with IFA Warwick Butchart of Cheltenham, feels strongly that his profession needs to operate to the highest standards when selling the product.
For this reason he was one of the founding members of IFACare, an organisation dedicated to extending knowledge and promoting business ethics. IFACare now has over 100 members from over 80 firms of IFAs throughout the UK, all of whom follow a code of conduct.
Yeates points out that the code is currently voluntary, but he believes long term care will become regulated. He wants regulation now, before there is a scandal along the lines of the pension mis-selling.
He is also concerned that currently a general insurance intermediary with no LTC product knowledge could be selling long term care. “You need to understand matters such as investment, tax and state benefits. You need to be able to advise clients to appoint a power of attorney. You are dealing with people who may be elderly and frail and there is the opportunity for the unscrupulous to take advantage.”
More insurers enter the fray
Yeates does not pretend that even the regulated are above reproach, but he does believe it will offer greater protection. And despite his knowledge, Yeates himself acknowledges there is still much to learn about the market, even for an IFA who has already developed expertise. He also points out that many potential policyholders are confused by the product. For example, he points out that many believe they need to buy cover to pay for their entire care costs, rather than just make up a shortfall with existing assets or funds.
Permanent, part of Equitable Life, is one insurer which has taken a low key approach, but is already successfully selling long term care. Corporate communications manager, Avenda Burnell Walsh, says this is due largely to the efforts of IFAs, but the company helps them by providing practical guidelines. These include a highly targeted sales letter which describes the demographic time bomb in easy to understand language and provides statistics about why long term care is necessary. Some of these tips are listed above, and Burnell Walsh says they are successfully tried and tested.
Despite the sluggish market, several major insurers have taken the long term care plunge with General Accident being the next poised to enter the fray. GA actuary Andy Holtham says the company is convinced private cover will play a major role in long term care.
GA will launch a long term care bond. This requires a single premium lump sum, the amount varying according to the age of the client and the benefits required.
Holtham says a key benefit is the bond’s flexibility. Units in the fund are used to pay insurance premiums which means the policyholder pays as they go. The bond can be cashed in early, and if care is required, support services will be available. He adds that the bond is just the start of GA’s involvement in the market, and that other product launches such as equity release are likely in the future.
Norwich Union marked its arrival in the long term care market with the launch of two long term care products, Immediate Care and Future Care. It has linked up with the British Nursing Association and Hambro Legal Protection to provide a full range of services. The insurer is keen to emphasise it is placing the emphasis on care rather than cash.
The long term view
Clearly insurers are taking a long term view with the product. They have chosen to launch without waiting for the verdict of the Government’s recently announced Royal Commission, which will report in December.
Tracy Hall, a health and care market specialist with Swiss Re, works with many insurers in formulating their long term care strategies. She says: “The main reasons why the product has not sold well are its affordability– it is expensive – and many people still believe the state will provide.” She points out that the Labour Government scrapped the Conservatives’ partnership proposals, but may well look at introducing a similar scheme.
Whichever party is in power, no-one can disguise the fact that Britain’s care bill for the elderly could top £50 billion by the end of the century. Unless this burden is to be landed with the taxpayer, it will be essential for insurers to play a major role.