As the number of people enjoying their golden years exceeds the amount of children in the UK, Ian Noble explains why there can no longer be any excuses for not reviving the long term care market.
The demand for products that meet the financial requirements of those wanting to fund for the provision of care has never been greater.
The UK population is ageing and statistics show that the percentage of people aged 65 and over has increased by 31% between 1971 and 2006 - from 7.4 to 9.7 million. Within this age group, even greater increases were seen in the percentage of people aged 85 and over. In fact, in 2008 it is thought that the number of children in the UK will be lower than the number of pensioners for the first time.
The number of people already in care homes or having to fund care in their own home is naturally rising and will continue to increase. According to the Department of Health, the average length of stay is around three years for those entering residential homes. Those entering a nursing home are generally much more sick or disabled than those in residential care. And so the average length or stay for this group is slightly shorter, at around 18 months to two years. As a result, there is a real need for financial backing to fund a stay in care.
living reality
It is rare for a person to only receive care in a residential or nursing home, but, in many cases, individuals will have had a number of years when they have needed care in their own home before getting to that stage.
Because the definition of 'care' is so broad, there are no exact figures available showing the number of people receiving it. However, there are nine million people over the age of 65 in the UK; one in seven of whom receives a social security benefit to help with the extra costs of care.
One in five people over 70 receive care in their own home, one fifth of whom require continuous assistance throughout the day. There are an estimated half a million adults in residential care or nursing homes in the UK and some 40,000 homes are sold each year to fund care costs.
Despite the enormous potential demand, the major providers of long term care (LTC) insurance withdrew most of their products from the market during 2004. This was mainly because the products were regarded as complex and expensive and seen as poor value for money.
Clearly, the industry is not helping its cause. Even the names given to products, or need areas, does not help reflect the motivation for clients taking out these products. For example, when critical illness policies were first sold, they were marketed under the name 'dread disease'.
The concept of prevention being better than cure has not been embraced or encouraged in this market. The products that have existed - split between immediate needs and future planning (or pre-funded) products - have been unsuccessful. To date, insurance plans that are designed to cater for the cost of care in later life have not been popular and, as a result, most insurers have now withdrawn from this market.
Annuities that are specifically designed to fund care fees and that recognise reduced life expectancy do provide a solution for some; similarly, equity release or lifetime mortgages are popular and can be used as a funding mechanism to pay for care.
There is, therefore, a huge opportunity for providers with innovative solutions to come to market. It is likely that specialist firms will introduce some of the answers, and they will be followed by some of the bigger players in the protection market that can compete on cost and scale.
These products need to be affordable, with flexible ways of funding either by regular or single premiums, to cater for all eventualities including claim, death and surrender. For this market to be successful, attitudes of advisers and their clients will need to change towards pre-funding care and providing for the future before it happens.
There is still a tendency for consumers in particular to worry about this kind of thing when it happens and not plan for it. The industry needs to work together to encourage individuals to plan ahead. It is not pleasant to think about having to go into a care home, but it is even less pleasant to have to go into a care home without the financial strength to have a say about where and when.
Providers need to be clear and upfront about exactly what they offer so that the client is completely aware of what they will be entitled to and the benefits.
The industry has to highlight to individuals that this is something that they cannot afford not to have. One of the main problems that the current generation of elderly people face is that they have had the idea installed in them that the Government would support them from the cradle to the grave. This may be true for certain benefits but the majority will have to pay for a certain percentage, if not all, of care needed.
If a local authority agrees that a person needs home care, it assesses their means to work out what proportion of the cost they should pay, and then it covers the rest. However, if a person's assets are greater than the upper means test limit they will not be entitled to any financial assistance from the local authority for long-term care costs and it is up to the individual to make their own arrangements.
Indeed, the industry needs to put the emphasis on the value of these products and refrain from encouraging people to select on price.
The need for long-term care has been accepted by the Government, and it was announced in the Comprehensive Spending Review by Chancellor Alistair Darling in October that a Green Paper is to be produced on how to fund long-term care in the UK. The impact of this paper on the market is likely to be a long time coming as the potential for innovation and education is huge.
LTC is thriving in other countries, most notably in the US and France, where the need is as prominent as it is in the UK but the attitude, appetite and perception is fundamentally different.
Advisers need to change the way they view products that meet the needs of their ageing clients and not dismiss them as a tricky subject that they would rather not speak to their clients about. Advisers should, as a matter of course, include LTC in discussions about estate planning.
The protection industry needs to adapt to changes in society and increased longevity should mean more innovative solutions. Clients want the choice and the flexibility to afford the most appropriate care for their circumstances in their old age.
In conclusion, with the number of people likely to require funding for long-term care set to increase, it needs to be included as part of all protection and estates planning discussions. This market is set for a resurrection - it is not a "nice to have" but an essential part of financial planning for retirement. The industry has a duty to respond with products and support services to intermediaries that give the consumer confidence that they will be financially secure in the increasingly likely event that they require care. n
Ian Noble is head of life sales and development at Lincoln Financial Group
