After months of waiting, the industry is beginning to get an indication of the Government's intentions concerning the future of the long term care market.
The Government's response to the Royal Commission on long term care was eventually issued in July 2000. This was followed up in December by a further announcement concerning the Government's intention to introduce full regulation and CAT standards to the long term care market. However, the long delay between the publication of the Royal Commission and the Government's response has caused problems for the industry. IFAs have found it difficult to sell LTC policies while insurers have been unsure how to develop their products until the Government revealed how it intends to fund LTC.
While the more recent announcement on regulation has been welcomed by the industry, the decision to fund only nursing care and not personal care was given a muted reception. The feeling is that while the Government has made it clear what it will not be funding, there are some issues that still require greater clarification.
In July, the Government announced that it agreed with a great deal of the Commission's findings and revealed a number of key changes to the way long term care will be funded in the future.
The Government said it will provide free NHS nursing care from October 2001, which could benefit up to 35,000 people. The costs will be paid when a registered nurse spends time in providing, delegating or supervising nursing care. However, funding will not be provided for non-registered nursing staff who provide the greater proportion of nursing care or pay the costs of accommodation in a residential or nursing home, and it is these costs which make up the bulk of the expenditure. Phillip Spiers, a partner with the Nursing Home Fees Agency, says: "A lot of charities are disappointed that the Government will not be delivering free nursing care, but because so much nursing care in the UK is delivered informally it would really open the floodgates."
The Government also accepted in principle that better services should be offered to people who currently have a carer and that they will consider a national carer support package, however, additional resources will be decided in the next spending review.
The Government has said that it will improve the level of funding for personal care over the next three years, but it is unwilling to make it universally free and the definition between what is personal care and what is nursing care is still unclear.
Kevin Pearce, protection marketing director at ZIFA, says the definition of nursing care is still not clear enough. He says: "The Government still needs to be a lot clearer about what it is prepared to pay for. I cannot see LTC taking off until it does this."
From April 2001, the threshold for means testing will be raised from £16,000 to £18,000, which is linked to inflation. The sliding scale of entitlements will remain in force, which means that people with assets of less than £10,000 will have their care bills met in full. Marlene Shalton, director of IFA group Chambers Morgan James, says: "The Government's response has had little effect on providers' policies. This really only affects people on the borderline - those who have money will still have to pay and those without will still rely on the State. It is those who have a small amount of capital who will be most affected."
The Government also announced that from April the value of the home will be disregarded for up to three months after admission to care in a residential setting and the opportunity for rehabilitation should form both an integral and initial part of any care assessment. The Government expects this will benefit around 30,000 people per year. However, Bob Clough, long term care manager at Countrywide Assured, says: "While this is a welcome concession, its effect in real situations is likely to be marginal. It is important to note that it is only the value of the home that is disregarded and not the value of any other assets."
Graham Kettleborough, associate director, business development and marketing at Countrywide Assured, says that another potential problem for insurers is that there is a chance they may have to adapt their products according to the different funding situations in some areas of the UK. "There is now a situation in Scotland, where the Scottish Parliament is considering adopting the recommendations of the Royal Commission which would make the situation more complex for the marketing of products."
There has been a certain amount of pessimism following the Government's proposals over how much it is actually prepared to fund. The financial services industry is now actively looking for ways in which to increase sales of long term care products. Rod Macdonald, head of sales and marketing at Permanent, says: "One major step forward is that IFAs can now sell plans on the basis of what is not covered [by the state]. They can knock off specific nursing costs and the means test and go on from there.
"The industry must raise the level of knowledge among IFAs to give them the confidence and the knowledge to sell long term care policies."
However, despite the uncertain situation over the past year it does not appear to have had an adverse effect on sales of new immediate LTC policies. New policy premiums of immediate policies have continued to grow at a steady rate to stand at £55m by the end of the third quarter. Totals for 1998 and 1999 stand at £71m and £75m respectively and insurers are confident that this sector of the market will continue to grow.
By the third quarter of 2000, premiums for new pre-funded policies had already exceeded previous levels by £1m, but at £3m, in new premiums the total remains small in comparison to immediate LTC plans. Roger Edwards, product marketing manager at Scottish Provident, says: "It has been difficult for IFAs to give advice on long term care because they did not know what the ballpark was and I am not convinced that the uncertainty has gone away sufficiently to make sales of pre-funded long term care substantially increase."
But Richard Thomas, managing director of RED ARC Assured, believes that insurers will have to make changes to their products in the near future in order to further develop the LTC market. He says: "Some insurers will create products next year that are viable for a wider market, but there are three issues they need to address. Firstly, a more mass market approach which includes solutions to the early stages of disability. Secondly, equity release schemes which enable policyholders to free up resources for payment of care premiums and thirdly, pensions planning which needs a radical re-think to allow people to free up funds if they need to."
Nevertheless, the uncertainty in the market over the last couple of years has not prevented some insurers from launching new products. Norwich Union launched two new products in 2000, before the Government's announcement, in conjunction with Age Concern. The Immediate and Future Care plans have new definitions of activities of daily living (ADLs), which mean that it is no longer necessary for the policyholder to always fail the ADL. It has also changed the wordings of the ADLs to make them more acceptable, for example, in the definition of washing by shower or bath, the phrase 'or by any other means' has been removed because it was seen as unfair.
Sandy Johnstone, long term care strategy manager at Norwich Union, says that by anticipating the Government's response it has been able make sure its products meet the latest requirements as soon as they were announced. Johnstone says: "The Treasury Committee has now published its report into regulation and CAT standards for the industry. It includes a call for the insurer to provide a full range of advice for the policyholder at any time, which our products now do through our new helpline in conjunction with Age Concern."
ZIFA has now started to develop plans to add LTC as a rider benefit onto some of its other products. Pearce says: "Adding LTC as a rider benefit on other products is starting to feel more logical. Our Whole of life product now has a long term care option. It could also make the costs smaller because it spreads them out over a longer period of time."
However, most insurers are waiting for the dust to settle before deciding on any plan alterations. Edwards says Scottish Provident will invest time in educating both IFAs and the general public, but does not have any immediate plans to change its long term care product. "We have not done anything with it because of the uncertainty in the market. We have no short-term plans for long term care but it would be a logical step to put it on our menu of benefits."
On the whole there is a feeling that sales of LTC will improve in 2001. There is an attitude within the industry that both the Government's announcement in July and the Treasury Committee's report on CAT standards are a clear recognition of the fact that LTC is coming of age. But insurers and IFAs still feel a need for more clarity over the funding distinctions between nursing and personal care.
Ben Marquand is a staff writer
