Long term care

The Treasury finally decided to regulate long term care insurance (LTCI) in October and it now appears that after almost a year of recommendations on the regulation of LTC, the market can now move forward and intermediaries can get to grips with advising clients on regulated LTC products.

Chris Ellicott, technical manager at Age Concern Financial Partnership, believes the regulation of LTC will see more intermediaries offering this type of product.

He says: 'Intermediaries cannot escape the issue of talking about LTC on the grounds of not knowing how it will pan out. Regulation should make it part of routine planning. If clients are approaching retirement, as an IFA you should be discussing LTC costs with them.'

Growth in the market is expected to increase as a result of the recent regulation and experts believe it is set to improve consumer confidence.

'It is difficult to find any disadvantages of regulation and it should be a big boost for the consumer. Previously, you had to alert people to the fact that it was not a regulated product which could be off-putting,' Ellicott says.

Taking time

Only time will tell how regulation will ultimately affect intermediaries, but Sandy Johnstone, long term care strategy manager at Norwich Union, believes that if it provides IFAs with an incentive to provide more advice in this area then it can only be a good thing.

Although the majority of protection groups welcome the regulatory changes imposed, there have been some qualms about how regulation will actually be implemented and whether it will promote the level of growth the industry anticipates.

Paul Casey, media relations specialist at GE Frankona Re, says: 'Clarity from the Government's recent announcements on LTC has given headaches to providers. There are difficulties around product design and there is no consistency. It actually makes it more complex as it's difficult to know what factors to load in to the product design. Since the mis-selling of pensions and endowments there needs to be added consumer confidence.'

Acting with caution

Casey is adamant the LTC market must not be over-regulated. 'The elderly are more vulnerable and as it is still a very small market, not one which is booming and so over-regulation could stifle it,' he says.

Casey estimates there are around 35,000 LTC policies in force and although intermediaries are waiting for a surge in the uptake of LTC, growth in the market has remained subdued in recent years. However, views on the effect of industry regulation remain optimistic.

Ellicott says: 'The market has been pretty flat due to uncertainty. We should see an increase from 2001 as we are seeing a lot more interest and the number of quotations is going up all the time.'

Roger Edwards, head of products at Scottish Life, agrees: 'The market has not really grown, the only part which has, is immediate need products. However, now the rules are clarified, it has made it easier for IFAs.'

Although there is now clarification within LTC, Peter Fisher, an IFA at the Nursing Homes Fee Agency, believes more needs to be done to promote growth. He says: 'The market is too narrow for mass appeal. Premiums are still expensive and insurers are still conservative in the underwriting and the pricing of the product. Until there is a narrowing of what insurers see as high risk and clients see as expensive, the market will not take off. If the protection market is to expand, it has to innovate in a way which can offer peace of mind at premiums the market can afford.

'There is a void between the reward of something which gives peace of mind at a fair premium from an insurance point of view and something which is too cheap and therefore exposes an insurer to undue risk ' it is all about finding a happy medium.'

It is the intermediary's job to ensure LTC is marketed and promoted in a manner which exalts growth and as the population ' on the whole gets older (see graph one), Johnstone believes IFAs need to ensure that the range of products offered matches the circumstances of their client grouping.

'More IFAs have realised their role is useful when advising people who are moving into care. Immediate needs is becoming a strong growth area and LTC needs individual advice as there are plenty of individual reasons for people buying it,' Johnstone says.

The new year

As we move into 2002, IFAs also need to ensure they understand their local market, according to Johnstone. With Government help differing on opposite sides of the border, issues such as the amount off assistance given for nursing care charges are affected. Johnstone says: 'A Scottish IFA will need to deal with things differently than a Welsh IFA.'

Casey agrees and says that due to the wide range of differences in the cost of care in the UK, LTC can be a complicated product to advise on.

One of the issues raised by providers is that IFAs need to be certain the product they are supplying will provide a suitable service at the time of claim.

Helpful benefits

Edwards says intermediaries need to check whether counselling is available, whether they are able to discuss the options available, if the client will be able to receive care in their own home, and how the process will be handled.

Casey believes it is the lack of awareness from a consumer point of view that needs to be addressed by intermediaries.

'People believe that the State will provide or they think need is too distant,' he says.

When consumers do buy cover they need to be confident that what they expect when they purchase a product is the same as what is actually provided when a claim is issued. There have already been some discrepancies noted at the point of claim.

Fisher says: 'On the pre-funded side, I question some companies' fairness in dealing with claims. Are they genuinely in the long term care market to deliver a service that the client is expecting? Some let down their clients and therefore undermine confidence in the market. If a policy cannot deliver support at the point of claim, then it does not deserve to be marketed.'

The type of policy offered by IFAs will depend on individual client's needs as some prefer to pay single policies with their premium up front, whereas others prefer regular monthly installments. Johnstone says that at Norwich Union, the emphasis is more on regular policies.

'We see two-thirds regular and one-third single policies. It has been like this for 10 years. A lot of people use their investment income to pay LTC premiums, but with investment terms being at a low level, some people may choose to use a single premium,' he says.

The type of policies offered by the insurance market and the general role of LTC is set to change under the new regulations, resulting in a shift from LTC being classified as a niche to a mainstream product. This could result in more IFAs specialising in this area.

However, the general consensus agrees that regulation is positive news for the LTC market and should induce growth over the coming year.