The LTC buyer is very different to the typical CI or IP customer so it would be unwise to regulate them as one, says Gisele Michael
We recognise the motive of having appropriate regulation as an effective protection for consumers and where there is no Financial Services Authority (FSA) regulation we follow the ABI and GISC codes of conduct. Increasing consumer pressure may result in greater regulation and gradual alignment of practices and standards between the FSA and the GISC in the future, but income protection (IP) and critical illness (CI) products are aimed at a totally different market with different needs than the average purchaser of long term care (LTC) products, so the regulatory factors are very different.
The average age of an LTC policyholder is 68 and they are usually looking to receive an income to ensure their most basic needs are met when they need financial protection most, that is, in old age. Coupled with this is the fact that frequently the income requirement is impacted by external factors such as their future health and the potential cost and increases in the cost of care. These products are aimed at a market whose consumers can be viewed as much more vulnerable and invariably are investment-based. The regulator was keen to ensure products sold to help individuals receive proper care would deliver just that.
In contrast, the average age of consumers buying CI and IP products is 36. This customer usually receives a regular income and pays the premium on a monthly basis. Most of the products in this market are risk-based and premium-led, not investment-linked. The products have clearly defined benefits and are generally taken out by younger people who are deemed to be less vulnerable than the typical LTC customer. The benefits of CI and IP products are normally structured to their income and family provision needs.
The pure protection regime is a risk-related one, founded on the generally agreed principles of market conduct and product disclosure, which are appropriate for a simple proposition if executed clearly.
It is a misnomer to suggest the protection regime is unregulated when clearly there are controls in place which are deemed appropriate. There is a view that full conduct of business regulation of pure protection products would not only be cumbersome and ineffective, but because it is such a competitive market, there would be no margin to pay for a heavyweight regime. More regulation would be hard to justify in light of these facts.
