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Break barriers to sales

When assessing whether the Government&#39s thinking on long-term care insurance is likely to lead to significant changes, it is worth considering why the LTC market has not made the same impact in the UK as in countries such as France and the US.

I believe one of the main barriers in the UK has been a lack of public knowledge about the need for self-provision, along with a general lack of provision for retirement.

This has been compounded by a limited range of products and distribution channels, marketing efforts being concentrated solely on the recently retired market and the reluctance of distributors to try a sale often regarded as difficult.

With this in mind, the NHS Plan can be examined in terms of its implications for LTC funding as well as the provision of care. Both aspects are important for the insurance industry. The key points of the plan have been well documented but are worth going over again.

Funding

Nursing care free at all localities (subject to legislative change).

Minor changes to the means test for personal care (£18,000, three-month disregard for the patient&#39s home).

Local authorities to have power to give loans secured on the home.

Eventually, an additional £900m a year for intermediate care and prevention.

Minded to regulate LTC insurance.

Provision

Single assessment process for social and health care (including personal care plan for all by April 2002).

National service framework to complement the National Care Standards Commission.

Health checks on retirement (pilot scheme).

Care Direct information service.

Efforts to prevent admission and encourage discharge.

The main attraction of the NHS Plan is its clarity over the role of state funding for LTC. The Government has made it clear that it rejects the royal commission&#39s proposal for all personal care to be free at the point of need. There is specific mention in the document that individuals may therefore wish to make plans for funding these potential liabilities.

In itself, this is good news for insurers as they can make good marketing use of the Government&#39s own comments.

However, it is still unclear whether insurers should make specific allowance in their products for the free nursing care that policyholders would receive while in a nursing home. Some commentators have suggested that distributors should try and sell policies with smaller maximum benefit amounts and, hence, lower premiums, to reflect the expected proportion of total bills that will be paid by the state.

This would be a mistake. First, it is not possible to predict what proportion of care costs will be defined as nursing. For example, the needs of an individual with dementia can be different from those of someone recovering from a broken hip.

Second, we expect some individuals will buy LTC insurance to access the special nature of private care. Although the NHS Plan is silent on this point, it is conceivable that the NHS may not reimburse private nursing costs.

Perhaps the most interesting issues for insurers are the Government&#39s developments on the way LTC will be provided. These developments are part of the drive for improved integration in the provision of care. Insurers should mirror these movements and ensure their LTC policies are not solely financial instruments that do little to reduce the incidence and impact of disability. Since even the Government recognises the value of prevention and early intervention, it would be a shame if insurers did not support this movement for better care.

The final issue to consider is the Government&#39s intention to consult on the potential regulation of LTC insurance. Regulation should be welcomed but it will be important to ensure it is appropriate and does not stifle innovation.

The US experience is not a happy one. Over-regulation of LTC insurance in some states through stringent loss ratio requirements has had the opposite effect to that intended. Policyholders are suffering as some insurers had to increase premium rates significantly from an inadequate base.

Some of the barriers to sales will be lowered as a result of the NHS Plan. However, much work will be needed before significant numbers of people understand LTC funding must be an integral part of their financial and healthcare planning.

To break this barrier, LTC insurance must no longer be treated as a stand-alone product. New ways are needed of linking it to other health cover and to general retirement provision. A greater range of products should be developed to reflect the differing needs of different market segments.

We do this for other products so why not for LTC insurance? Other countries, particularly the US, have already recognised this need for variety.

It was in December 1999 that Health Secretary Alan Milburn first said in Parliament that he was looking for ways to encourage the take-up of LTC products. The industry now needs to deliver.

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