The fourth Think Tank debates the future of the long term care insurance market, Kirstie Redford reports
Alex Broad: Pre-paid long term care insurance (LTCI) sales are still low, yet immediate needs plans are increasing. What can the industry do to help boost LTCI sales before clients need care?
Philip Spiers: I do not think it's up to the industry, I think it is up to the Government. The Government needs to do the same as with the pension campaign ' let people know that they need to pay for their own long term care and what will happen if they don't. Until the Government actually makes that move I don't think people will believe it.
Peter Barnett: Two of the main issues have to be affordability and clarity. LTCI has to compliment the public sector proposition. However, if you don't know what this is, both now and in the future, it is quite hard to do. This is not an annual renewable contract ' you have to look a long way into the future. An IFA has to forecast how much money the client will have in the future, what long term care costs will be and how much the State will contribute. I would back horses and be more confident I was right.
Owain Wright: It is true the immediate needs market is much larger than pre-funded ' so why not use it? People are more familiar with it.
Caroline McQuade: I have no problem selling pre-funded policies. It is about educating the client when you see them. Many people in the industry do not have time to deal with pre-funded business and they push it aside and concentrate on immediate needs plans. But people do not know where to turn to for information and advice. Even if they are seeing their accountants and solicitors ' they do not know. So many clients come into my office and say: 'I knew I needed to do something, but didn't know where to go for advice.' People want to do something and trust somebody, but they don't know who.
Jonathon Whiteley: So does the Government need to make people more aware of their options?
Caroline McQuade: Definitely. Information needs to come from the Government and stem down to advisers, so they become more aware of the market, in addition to other professionals such as accountants. How can anybody give Inheritance Tax advice, for example, without looking at LTCI?
Graham Fidoe: At the end of the day, LTCI is a financial planning tool. If more advisers become financial planners, they will have to have it on their agenda. All advisers need to be encouraged to advise retired clients and ensure they discuss LTCI. We live in a litigious society and with all the problems surrounding professional indemnity insurance, we can't afford any more mis-selling. There are lots of myths surrounding LTCI and one is that it is expensive. It is difficult for any financial adviser to tell clients how much pre-funded benefit they need. That is dangerous. What could be useful is if advisers were to say: 'According to our best estimate, the shortfall is likely to be X, your income is Y ' why don't we cover 25% of the shortfall at this stage.' That way it is not expensive. The client then has access to a counselling service, which is a big benefit that is often not highlighted, and they have addressed the issue of long term care.
Caroline McQuade: It is like scales ' if you have the choice between paying out the cost of two years' care, or having an open-ended cheque book where you could risk losing everything, I know what I would choose. People who don't have much disposable income like LTCI because they know what they will have to pay out.
Graham Fidoe: In financial planning terms, once you have sorted out LTCI, you can give your children the rest of your money today, which is great for Inheritance Tax planning. Many people are afraid to gift due to possible long term care costs.
Chris Ellicott: Long term care issues are important to Inheritance Tax planning. I think LTCI has a terrible name ' why not change the message so people think of it as a policy that can repair any damage done to your estate if you need care? If this was done, I suspect a lot more people would want to sign up.
Caroline McQuade: If you talk to clients initially about needing care, they don't think it will happen to them. But if you approach LTCI as a solution that can ensure the client's assets don't disappear, then it can prove more effective.
Philip Spiers: That is a valid point ' there is an awful lot of denial among clients about the possibility of needing care. The ideal market for LTCI is people who have experienced their own parents going through the care system. It is about getting the message home that it probably will happen to them, that they can spend £15,000 now or £150,000 later if they don't get protection.
Peter Barnett: I would like to ask in the context of that whether there is any segmentation in the market. I do think we are trying to deal with two different markets at once. If we are looking at sophisticated, financially well-off clients, then I can understand they would want to seek pre-funded LTCI. But this can be confused with the mass market where other financial difficulties may be present and where money may be best spent elsewhere. We need to ask whether the one product can cover both of these markets.
Caroline McQuade: When I talk to customers about pre-funded LTCI, I sit down with them and ask what their financial situation is now and what they want to achieve in the future ' that shopping list of things you need to sort out. For my clients, living in Surrey, they have a problem straight away with Inheritance Tax due to high house prices. I know they will need some sort of LTCI, but if I don't come straight out with it and ask them about what is important to them first, they soon realise they need it.
Graham Fidoe: There are a lot of people who throughout their life, all they have done, is buy a house. And what they want more than anything else is to pass that house onto their family. Once we've established that, we can ask how we can achieve it and what the risks are of it not happening. Then it opens the door to talk about issues such as LTCI and Inheritance Tax. It may be that LTCI premiums are £60 or £70 a month and they can only afford £35, but it then becomes a savings plan for their children ' at some stage in the future, they are going to get the house.
Alex Broad: If property is a big part of the equation for people who are asset rich and income poor, can equity release provide a solution?
Philip Spiers: Certainly. If you take £15,000 out of the equity of the property and pay for LTCI, it is just a tiny corner of its value, but it is taking care of the whole property in the long term.
Peter Barnett: I do think we will see LTCI moving into a wider part of financial planning ' including equity release. We are moving into an economy with more mixed provision, from private companies and the Government.
Graham Fidoe: The challenge for all of us is to get the balance right.
Peter Barnett: It is also worth looking at systems in other countries. In France the Government is transparent about what it will and will not provide and it actually markets the product. If we had that level of openness and honesty about what individuals are expected to provide now and in the future, I think people would plan more effectively. If people aren't aware of what they need to provide, they are not going to plan for the future.
Owain Wright: Yes. The problem isn't that the State won't provide, it is that it won't say it won't provide.
Chris Ellicott: So many people cling onto the hope that State provision will actually get better so they don't believe they need to plan for self-provision.
Graham Fidoe: I would like to know whether the Government would be worried if LTCI sales stopped ' if the big companies withdrew from the market. I think they would be worried. It is also a real possibility because sales are so flat. We should be seeing new players in the market, such as Prudential and Standard Life ' but I don't think we will while sales are so low. It should be up to the Government to say: 'Come on, you have to do something.' Otherwise the one area that can help people with this shortage could be about to disappear.
Jonathon Whiteley: Why should the Government be worried about whether sales drop or not?
Graham Fidoe: Because it helps to pay the cost. Without it, people will be forced to fall back on the State.
Caroline McQuade: The Government believes there is a place for insurance and wants people to be aware, but it has difficulty recommending a specific company to give advice.
Chris Ellicott: I don't think the Government would care if LTCI sales stopped. At the end of the day, this is a Labour Government and it does not owe the insurance industry any favours ' especially after the endowment mis-selling scandal.
Graham Fidoe: But the grey vote is becoming increasingly powerful.
Chris Ellicott: That may be so, but people want to stay in their own homes to have care and the Government is making all the right noises to keep people happy by lowering the means test for people receiving care at home. Whether this happens, only time will tell.
Alex Broad: What kind of communication and clarity would you like to see from the Government?
Chris Ellicott: The Government needs to make people more aware they could have to foot their own care bills. Local Authorities need to be more active in at least telling people that insurance is an option. The Government knows when people turn 65 ' it should make people aware of their LTCI options, in addition to their pension, at this time.
Peter Barnett: It would also make sense for people to be given a financial MOT when they reach 75. Many opportunities are being missed.
Caroline McQuade: And there should be more communication at the point when people actually need to go into care ' no one gives them advice then either.
Alex Broad: So why are all these options being missed?
Caroline McQuade: It is bad communication across the board.
Philip Spiers: The problem is if you can afford LTCI you probably don't need it and if you can't afford it, the chances are you do need it. The people who really need LTCI are asset rich and income poor.
Peter Barnett: We also have to consider the effects of the media who only have two stories. The first one is 'granny bashing' in care homes and the second story is about the evils of insurance companies. You cannot get the kind of views about LTCI we want to portray in the national press. And without the media getting involved, we're going to have trouble getting the right message across to the public.
Graham Fidoe: Perhaps the industry should try to educate the press because then they may be interested in listening. This issue will affect every family in the land ' not just a few people, but every family. And they'll wish they'd done something about it.
Peter Barnett: I bet when clients discuss LTCI with advisers, the most frequent thing they say is: 'I wish I had come earlier.'
Philip Spiers: You are right, it is.
Peter Barnett: So how do you, as an adviser, go about marketing yourself?
Philip Spiers: We aren't rich like insurance companies and we can't afford to take out a full page spread in The Times or The Telegraph. We are limited to what PR we can get for what we can afford. It is difficult for any IFA to meet the cost of marketing.
Caroline McQuade: It should be down to insurance companies and networks to market LTCI and make sure it is discussed.
Alex Broad: So what would be at the top of your wish list to help future growth in the LTCI market?
Caroline McQuade:
It has to be Government-led education. In addition, more advisers need to be educated about LTCI ' to make sure more people are properly qualified to work in this market.
Philip Spiers: I would like to see some form of Government initiative to educate the general public about what they aren't going to get in terms of LTC funding. Also, looking at equity in property as a way forward to provide funding for cover.
Peter Barnett: I think we need more transparency about what the Government's funding proposition actually is and the removal of disincentives for people to save money and buy products in order to protect themselves.
Chris Ellicott: We need more awareness of LTCI from the Government. Local Authorities need to take the opportunity to contact people at retirement age to tell them that insurance is an option. IFAs need to take LTCI issues on board and also challenge the name of the product.
Graham Fidoe: I would agree the product's name should be changed. Advisers should be educated that the retired market is getting wealthier by the day and if you want to advise in this area, you have to have LTCI on your agenda. I would also like to see insurers get behind a generic campaign to say: 'With this policy in place, you can do anything you want with the rest of your money. You can fly on Concorde, you can gift money to your children, you can do anything.'
Owain Wright: I would reiterate education. Clients do not know about LTCI because advisers are not telling them. Information needs to come from advisers who must know what they're talking about, or from the Government. Whichever way, the public needs to know.
Kirstie Redford is editor
