The Pension Annuity Friendly Society (PAFS) recently launched a new pre-funded long term care (LTC) solution. Will this wave of innovation continue and is the market likely to see more new products?
Market views
Chris Ellicott, Age Concern Financial Partnerships
The Flexible Care Account has been trailed extensively, so it was interesting to see what PAFS would come up with in its new 'Activities of Daily Living (ADL) free plan'.
I am sorry to say I am disappointed. For an IFA looking to give a client access to the additional income needed to provide the help they prefer, it does not match current offerings.
Personal and domestic help, which are what most people need, as well as assisting devices, all have to be paid for from the client's own money. Having no ADL trigger is different, but on this plan it means more restricted cover. Having a 'sum insured' is also different, but wouldn't the client prefer protection for life?
Nevertheless, the plan does strike out in a different direction, and if that triggers other providers to think laterally and to bring new products on-stream that cannot be a bad thing. I suspect they will not follow this route, however, and that in itself should open up a new and wider field of vision for innovation.
That said, the overall shape of current plans does fit customer needs pretty well. Plans pay out when the customer has to pay out and the customer does not run out of benefit. The challenge is to find a different way of achieving that.
Have current providers been looking at alternatives themselves? They have and they are. We will have to wait and see what the future brings.
Les Schroeter, BUPA
The pre-funded LTC market has seen very little growth since 1997. New and innovative products will help to stimulate the market but it will take more than products to create the level of predicted sales.
Many providers are aware of this and will look at other shorter-term solutions while making minor changes to existing products to keep up with trends in the market. The question that needs answering is the reason behind client and adviser apathy towards planning for their future LTC needs. In today's ageing society, people need to be aware that they may need LTC should they live beyond 65.
Other needs such as Inheritance Tax and retirement planning could count for nothing if someone has to pay for LTC. For younger people, priorities are usually to protect income, pay off debts or fund treatment for a major illness, as well as protecting their family's standard of living in case of premature death.
Products that address the traditional needs of individuals, but also ensure their LTC needs can be met will go a long way to address the requirements of the market. For example, having an income protection product that converts to LTC on retirement.
Significant market growth will only be realised when the public is made fully aware their LTC needs will not be met by the State and that the benefits of planning, with the use of appropriate products, will provide them with huge benefits both now and in the future.
Owain Wright, The Care Funding Bureau
In its initial form, this product is not perfect. It is not yet able to pay out if you require residential care, but most new products develop and I am confident that an improved version will appear in the not too distant future.
Other providers have been standing on the sidelines and watching the market with interest. In recent years they will have observed participating companies putting in considerable marketing efforts for not very much reward. The result being that new companies entering the market have been very few indeed.
It is something of a vicious circle. With no new products around to entice the buying public, they are unlikely to buy.
The pre-funded LTC market has been in the doldrums for quite some time now with the total number of policies sold in 2002 standing at 2,851 compared with a high of 8,080 in 1996.
One of the biggest perceived constraints is still the lack of awareness of the need to make provision. The issue of requiring care is but a step away from the issue of death and bad news subjects such as these rarely get the attention that they deserve.
It is this barrier that needs the attention and I am pleased to see that PAFS have tried a different approach to getting the message across by dealing with affinity groups. I hope, for their sake and that of the LTC sector that it works.
Peter Fisher, Nursing Home Fees Agency
As much as I would like to see the PAFS entry into the pre-funded LTC market act as a catalyst to others, I doubt that it is.
Like most potential purchasers, insurers are sitting on the fence waiting to see if any one provider can break the mould and achieve the nirvana of compliant volume sales delivering bottom line profits.
Sales relative to enquiries remain depressingly low and the market continues to be characterised by plenty of window shoppers but few actual buyers. Ultimately, there are a number of negatives that just appear too insurmountable to overcome.
Insurers bemoan the huge costs in the manufacture of new products. Achieving profit requires significant volume sales and that, in turn, requires a sizable marketing allowance that has to be factored into the price.
To counter some of these problems, PAFS has designed a product that can work in the affinity group market. This immediately reduces delivery costs and the savings can be passed on to the consumer.
In future, I see product development in pre-funded LTC concentrating on bespoke insurer and broker relationships targeted at highly focused audiences. These could be care home groups, charities, voluntary organisations and retirement fellowship groups.
This development would seek to enhance relationships between the host organisation and the IFA.
