BUPA's decision to withdraw from the pre-funded long term care (LTC) market has further reduced the size of the already dwindling sector. Does the market still have a future?
Market views
Nicky Cave, Millfield Partnership
The market must have a future for the simple reason that the client need has not gone away. It is my firm belief that the core of the problem has been the reluctance by professional advisers to raise the topic of LTC because they are not knowledgeable or confident enough to answer the questions that a client may subsequently ask.
Until these advisers improve their knowledge, or build up a cross-referral relationship with a specialist care adviser, we will remain in a catch-22 situation, where insurers will not develop new products due to lack of demand, which in turn could simply be due to our ageing population's blissful ignorance. It is our responsibility to educate them about exactly what the future could hold and give them the opportunity to plan for it. Ignoring the subject should not be an option.
The future, from a product perspective, will probably lie in smaller, niche players coming into this market; those who can afford a lower turnover of business.
The public is now more aware than ever before about the need to confront their fears for the future and take preventative action. Perhaps because of extensive media coverage of the reality of the care situation or simply because many more families are experiencing, first hand, the effect of a relative paying their own care costs. Consequently, our industry has a duty to provide solutions and ensure that there is a future for this market.
Shelley Robertson, Skandia
With BUPA's withdrawal from the pre-funded LTC insurance market, Skandia will now be the only provider offering this type of cover. As a result, the market's future needs careful consideration.
We believe that there is a definite need for this type of insurance for our increasingly ageing population. However, while it is a shame that other providers have pulled out because business volumes are low and have never really risen to expected levels, the rationale to do so is clear.
In terms of timing, LTC policies will fall under the FSA regulation with effect from 31 October 2004. The increased focus on this market in the months leading up to regulation may well have triggered providers to reassess the viability of remaining in the market. In addition, the new requirement to sit an exam within two years in order to advise on LTC insurance, could have an impact on the number of IFAs who choose to continue to sell these products – further limiting the viability of the market.
At Skandia, we are considering our options and are undertaking a cost benefit analysis to determine our future stance for pre-funded LTC cover – especially the ramifications of being a sole provider. We will obviously keep IFAs fully informed of any decision likely to affect Skandia's continued presence in this market.
Graham Duffy, PAFS
The pre-funded LTC market is only going to become more important and it will soon become a core part of retirement planning. Historically, retirement planning has centred on pension arrangements and Inheritance Tax planning. However, as medical science and lifestyle improves, people are living longer but are not necessarily able to retain their independence.
Events such as a partner's death or an illness often trigger a move into care, either residential or nursing and this care is costly. Most people are unable to fund LTC from savings and are reluctant to sell the family home. Careful retirement planning incorporating a pre-funded LTC insurance plan can ensure that a move into care is not a stressful and financially difficult time for the elderly person or their family.
LTC is a relatively new market sector. It is gradually becoming the norm that elderly retirees will require some sort of care.
Chris Ellicott, Age Concern Financial Partnerships
As someone who's spent a good deal of time involved with this market, I would love to say that I think the market is sure to bounce back. But in reality, I suspect it will not.
There are a number of reasons for this. Firstly, people's attitudes are such that instead of asking about ways to pay for care, many ask how they could avoid paying for care. And to me, that is the kernel of the issue.
People still don't feel they should have to pay for their care, so for the adviser, insurance planning remains an uphill struggle. Add to this some of the other influences affecting the market and is it not surprising to see how we have arrived at this situation.
The bulk of individuals' wealth is tied up in property, and couples can easily place their house out of the means test limit in many circumstances. Also, the value of property has rocketed so much that there will still be cash left over even after paying for most nursing home stays.
People also shy away from 'over-engineered' products providing pretty good benefits because of the cost. And when there is a fall-back option in the form of an immediate needs care plan, it is easy to see why people fail to consider their retirement options before they have to.
