The Care Bill is an obvious boost to the long-term care market. But, annuities aside, what are the insurance implications? Richard Walsh investigates.
On 9 May the Care Bill was finally published. Much of it has already been flagged up: the main changes so far have been a reduction in the level of the cap on some costs (now £72,000) and to move implementation forward to 2016.
The bill is now progressing through Parliament. As such, we can expect further changes. So what does it all mean in practice from an insurance perspective?
One starting point is to look at the level of risk that individuals might want to insure against. Graph one (pictured below) shows how the costs are rising exponentially at the moment for about 20% of the population under the current system.
This ‘tail’ of costs has been one of the reasons why insurance has been so difficult to price to date and why, when protection policies were available, premiums were so high for people buying a single premium policy on retirement.
Graph two (below) shows how the current system, a cap without a change to means testing limits, and a cap with changes to means testing limits would impact someone with eligible costs of £150,000.
It shows how these costs could be reduced by the proposals. If you increase the costs to say £250,000, the savings for people with higher value property would increase in percentage and cash terms.
At first glance, the effect of the reforms will be to reduce the amount a person would need to insure against, and remove the extreme end of the tail of costs, making insurance solutions more affordable and viable.
While this is true in general terms, the detail is important from the point of view of someone buying or selling an insurance product, should they become available in a new market.
The main danger point is that the cap is not what it seems. It does not include general living costs. These will be subject to an annual cap of about £10,000, but expenditure will not count towards the £72,000 cap.
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