Aegon says it is eyeing the long-term care market following this week’s Government reform plans, although other insurers are less positive about the potential to offer cover up to the proposed cost cap.
This week, health secretary Jeremy Hunt told Parliament he wants to implement a £75,000 cost cap, increase the upper means-tested threshold to £123,000 and introduce an annual “hotel costs” cap of £12,000, all by April 2017. He told MPs he hopes the package will lead to insurance or pension products being created.
An Aegon spokesman says: “These proposals enable providers to think about solutions for long-term care and it is definitely something we will be looking at now. We have experience offering these sort of products in America so we already have a lot of the expertise in place.”
There are currently only two active providers in the UK LTC insurance market– Partnership and Friends Life. Both offer ‘immediate needs’ annuities with income paid to the individual’s registered care provider. The plans are individually underwritten and are based on the individual’s age and state of health at the time of application.
Partnership managing director of care Chris Horlick says: “I doubt this announcement will lead to a glut of insurance providers coming into the long-term care space.
“We do not think pre-funded care insurance, for example, is likely to take off for a number of reasons, namely customer inertia and the uncertainty for insurers about how much someone’s care will cost in 40 years time.”
Horlick says he expects the Government to explore ways of linking care funding with pension saving.
He says: “If people are encouraged to save much more into their pensions, I think more flexibility around pension usage would be a good thing.
“I am in favour of Government incentives in this space. For example, if someone said they were going to use their tax-free lump sum to pay for care costs then the Government could offer to match them pound-for-pound.
“I think the Government will explore linking pensions and care.”
An Aviva spokesman says it is “still early days for the industry in terms of any potential move towards products” while Standard Life and MetLife say they have no plans to offer LTC insurance products.
The Dilnot Commission report suggested providers could develop ‘disability linked annuities’, whereby payments are increased if a person becomes disabled.
However, writing exclusively for moneymarketing.co.uk, Strategic Society Centre director James Lloyd said the funding model proposed by the Government will result in “negligible” use of DLAs in the future.