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Setting LTC standards

The Treasury&#39s proposals for the introduction of Cat standards on long-term care insurance have come as no surprise, with the industry and the media expecting it for the last three months.

The proposals for the Cat standards are in a consultation paper on the regulation of LTC insu rance products.

What was a surprise in the paper was the Treasury&#39s backing for regulation of LTC insurance products and financial advice on the products.

After opposing the regulation of LTC insurance when the Financial Services and Mark ets Bill was passing through the House of Lords last year, the Gov ernment is now accepting the royal commiss ion&#39s arguments that there are sufficient grounds for full conduct of business regulation. We have been campaigning for full regulation of the LTC insurance market for several years and very much welcome this step. But once again, this is only a proposal and responses are invited from the industry and interested parties on both regulation and the proposed Cat standards by March 31.

The Government has signalled its intent and many more IFAs will have to take LTC advice more seriously than they have done.

The issues that are involved are significantly different from those associated with normal investment and pension advice. Can we expect a flood of applications for the G80 AFPC examination in Octo ber?

Assuming that full regulation goes ahead, we would not expect it to be implemented until the early part of 2002. Although the legislative work will be minimal, the FSA will have to go through its own consultative process to inc lude this type of business in its rulebook.

The Cat standards are cap able of standing alone from the regulatory issue and it would be no surprise to see the Treasury putting pressure on the industry to implement them for existing and new products soon after they are finalised in the late spring/ early summer.

The Cat standards have come from a Treasury-led working party which examined the types of financial products which could help a person protect their assets and savings if they have to pay big LTC bills.

It is worth saying that the Treasury does not imply in any way that these standards are designed to address a current problem in the LTC insurance market.

The stated aims and objectives of the Cat standards are to help define LTC products which offer a reliable, efficient and effective means of saving to pay for care. They also aim to create a framework for safe products as well as a fair deal for customers.

Through Cat standards, the Treasury is not trying to provide a blueprint for the “best” product on the market bec ause, of course, what is considered to be suitable and affordable for one person is not right for ano ther.

For LTC insurance, Cat stands for cover, access and terms. In the case of Isas and mortgages, the C stands for char ges. So why the difference?

Unlike Isas and mortgages, which have no insurance risk, long-term care has a substantial risk. Because this is a new type of insurance, the past experience available to product providers to assess the risk is limited so they have to exercise a reasonable deg ree of caution in their pricing.

It would not make any sense to impose limits on charges which could undermine a provider&#39s future solvency.

The Treasury watch words are clarity (in terms of key features of the product), claims and benefits and the process covering them, and the costs of cover and factors which may have an impact on these.

The Cat standards are comprehensive in scope and in particular require high service standards, especially at the time of a claim and for the rest of the ins ured person&#39s lifetime.

Any company aiming to Catmark a product will need to provide a good quality care support service.

This is clear recognition that, unlike most other LTC insurance products, real LTC insurance benefits for the consumer are about much more than just a financial payout.

Last summer&#39s NHS Plan, which included the Govern ment&#39s response to the royal commission on LTC funding, specifically mentioned LTC insurance as a way of setting aside some funds to protect the remaining savings and assets.

This was a tacit admission by the Government that its proposals for funding LTC are very limited.

The Cat standards move the agenda another step forward. They are designed to ensure that, as this market grows, advisers and consu mers will have a benchmark against which to measure the quality of a product&#39s benefits and services.

Products that are not Cat marked will have to state clearly where they are falling short of the standards.

The Government knows the insurance option makes sense and the task now, for both insurance providers and IFAs, is to go out and make people who are in their 50s, 60s and 70s aware of the possible implications of the failure to explore this form of protection.

The financial implications of needing long-term care must be considered as part of a package for retirement or inheritance planning.

From an IFA&#39s viewpoint, it also makes sense to touch on the latest developments in this market with clients whose parents may benefit from considering this form of protection.

If the introduction of Cat standards is designed to help the consumer choose the right product in what is exp ected to be a growing market, these standards must also make it easier for the IFA to explain and explore the LTC insurance option with clients. The Government is tacitly encouraging IFAs to go out and have this discussion with their clients.

What IFAs need to do now is not just get up to speed on the products but also to understand why clients need the peace of mind that LTC insurance can provide.

In our experience, customers take out this type of cover to protect their independence as much as thr ough a fear of the financial consequences.

If the worst happens, they want the freedom to choose where they receive their care, which is normally in their own home. But this can be very expensive – often more so than a nursing home – so they need to plan properly for it.

They want to be able to choose who provides their care and the quality of the services offered. They want to continue to have a social life and to be able to get about despite their disabilities.

In other words, they want the best possible quality of life their chronic illness or disabilities allow them.

Long-term care insurance benefits can help protect a way of life at home as well as ensuring that, when staying at home is no longer an option, a customer goes to the nursing home of their choice.



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