The regulation of health insurances is falling between two chairs – a
situation which has been described as muddled and confused.
Long-term care cover, permanent health insurance (or income protection),
critical-illness insurance and private medical insurance are all
Later this year, the General Insurance Standards Council will assume
regulation of short-term or general insurance. Any LTC policy that has an
investment component is already regulated by the FSA.
But moves to regulate LTC threaten to cause confusion. The Treasury's
consultation paper on LTC insurance sets out a range of options, including
its preferred option (option three in the paper) which would allow for full
FSA regulation of LTC only. Option four would result in the FSA regulation
of all health insurances. The consultation period closed at the end of
March and the Treasury is collating responses.
The Treasury would seem to have effectively prejudged the consultation.
Spokeswoman Liane Farrer says: “We do not intend to have statutory
regulation of critical and permanent health insurance. It is up to the
industry if it wants to regulate itself.” She does not think this will lead
to anomalies or loopholes.
Swiss Re technical manager Ron Wheatcroft says: “The challenge for the
Treasury will be to define long-term care very clearly and in such as way
as not to encapsulate other health insurances.” He points out the Insurance
Companies Act does not define LTC, which is subsumed under PHI.
At present, health insurances are covered by one of two ABI codes of
practice. Those that fall under the general code – that is short-term
business – will see regulation transfer to the GISC. Long-term insurance
contracts and permanent health insurance – other than LTC and regulated in
accordance with the Treasury's future announcement – will continue to come
under the scope of the ABI life insurance (non-investment business) selling
code of practice.
The difficulty arises in the way in which products are defined and in how
they are written. It is possible for many of these products to be written
as either shortor long-term contracts, says Wheatcroft.
At present, there seems a lack of will to sort out the confusion. The GISC
does not want to assume responsibility but it has said it will step into
the breach if necessary, albeit reluctantly.
GISC head of communications Catherine Nicoll says, from a consumer
protection point of view, it is unsatisfactory that health insurances
should be unregulated. “If the FSA showed no sign of doing so, we would ask
the GISC board to extend its scope to cover these,” she says.
Most submissions to the Treasury's consultation paper have followed the
Government's preferred option three, leaving critical-illness cover and
permanent health insurance out in the wilderness.
Many justify this as wanting to avoid further delays to the regulation of
LTC, which further consideration of other healthcare insurance would
Norwich Union Life long-term care strategy manager Sandy Johnstone says:
“We do not support the inclusion of other healthcare products, which we
believe should be done separately. LTC should be first in the queue and we
do not want to see another period of protracted debate before regulation
The Treasury consultation document states it is unaware of any consumer
detriment at present. Many in the industry are keen to point out they act
as though health insurances were regulated.
Nursing Home Fees Agency partner Philip Spiers says: “We are for
regulation and already act as if it was regulated. The danger with
long-term care insurance is that it replaces means-tested state benefits,
which private insurance could unnecessarily be replacing pound for pound.”
Looking at it from another angle, Bupa Health Assurance managing director
Geoff Brown asks: “Does confusion constitute consumer detriment?” He adds
that Bupa is alone in favouring option four – the full regulation of all
Regulation soup is the last thing that the consolidation of regulatory
powers to the FSA and the GISC was meant to achieve. Neither was the
effective deregulation of certain products supposed to happen.
Imagine this scenario which is put forward by Wheatcroft. An IFA sells a
pension plan with three ancillary products. The pension itself is regulated
by the FSA. The term insurance has been deregulated, long-term waiver falls
under the ABI code of practice and premium waiver falls under the
regulation of the GISC.
Not only is this confusing for all concerned, but it raises the spectre of
dual regulation for IFAs. Money Marketing first pointed out that the GISC's
controversial rule 42 means providers regulated by the GISC will only be
allowed to do business with intermediaries who are also members.
This is an outcome welcomed by no one. Nicoll says: “Unfortunately, there
will have to be some dual regulation. It would be better if these products,
which are usually sold by people who are regulated by the FSA, were then
also regulated by them.”
From a provider's point of view, Brown regrets the consumer confusion that
will ensue. IFAs will not relish the cost and bureaucracy of another
regulator. Wheat-croft envisages the market being skewed as IFAs shy away
from certain GISC-regulated products. Partial regulation could actually
then constrict consumer access to some products.
The Treasury consultation paper recognises the need for regulation of LTC
products. It says: “Many policies are sold at a time of stress or crisis in
consumers' lives. They may, therefore, be particularly vulnerable to
Brown believes the industry is suspic-ious of a move to regulate LTC by
Cat standards initially, with full regulation following later in the year.
The Cat standards suggested have been criticised for on the one hand
constraining the development of a product in its infancy and on the other
as offering insufficient protection.
The proper selling of long-term care insurance will require new skills
from many IFAs. Johnstone points to the fact that LTC is about advice and
is not product-driven.He says: “IFAs need to understand the social
environment and how long-term care is delivered in this country. Advice to
clients falls into two parts. First, they should be made aware of what
state provision there is and personal accountability. Only then should they
move on to assess the risk element. Buying insurance is part of that
Spiers says: “Those who need LTC will typically be 65 years old and in
denial about going into a care home. They tend also to be very suspicious
of IFAs. For LTC to work, the Government has to get behind it, like with
pensions 20 years ago.”
The question of definitions does not only bedevil the products themselves
but also the aspects that the policies are to cover. Age Concern senior
parliamentary officer Richard Heller says: “Nursing care has been defined
in a restrictive way by the Government. Older and disabled people will
still be left with substantial care bills.”
Permanent Insurance head of sales and marketing Rod MacDonald believes the
issue for IFAs is to get clients in their 50s to start thinking about LTC
rather than waiting until they need it. But he adds that the uncertainties
make it difficult to advise on LTC at present.
Consumers' Association senior policy officer Mick McAteer is calling for
one-stop regulation. But this solution to the quagmire might not be a
pipedream. Reflecting the opinion of many, Macdonald says: “I can see the
GISC being swept into the FSA. There is not a strong argument to keep
general insurance out in the long run.”