Planet Insurance - Dilnot's big opportunity

The publication of the Dilnot Report provides a once in a decade opportunity to arrive at a fair care funding system.

Let us hope it has more impact than the last Commission report ten years ago.

A crucial difference this time is that the contribution of private insurance to meeting societal needs is not in dispute and there is a possibility of cross-party consensus.

From an insurance perspective the stakes in the ground are pretty straightforward for people over 65.

Their contribution to care costs would be capped at £35k. And the amount they need to contribute to living expenses would be capped at £10k per year.

Three types of insurance are proposed. The first is a disability linked annuity.

This product would provide a lower initial annuity income (by around 10%) but if the person failed three ADLs or simply reached 85 their income could be doubled or trebled.

The report strongly recommends that these annuities should benefit from current taxation rules.

The link to pensions is welcome but the payout is not related to the £35k cap. It needs more thought.

The second suggestion is equity release as now. The third is critical illness (CI) or income protection (IP) products that could convert into long-term care (LTC) insurance.

These products did exist before the FSA decided that they would be treated as investment products (as were pre-funded LTC products) at the time of their sale as IP. Not surprisingly there was an immediate exit by insurers.

It recommends the government set up a working group to look at why LTC insurance was so strictly regulated in the past.

It should link with ‘simple products’ work and seek to avoid potential consumer detriment.

Some of the key points that need to be addressed are: first, clarity on how much any policy will pay out.

The simplest answer would be £35k (the cap) as a cash lump sum plus a top-up of a set amount to cover living expenses. The CI model is simple.