There is scope for the insurance market to take a greater role in the social care and long-term care markets, key industry leaders have told Health & Protection.
This would require the design of new protection products that are pre-funded or dovetail with state provision and potentially taking on board lessons learned from across the English channel.
But turning the situation around could also require individuals to be incentivised to plan for their own long term care needs.
Fixing broken social care
Fixing the country’s ‘broken social care’ system needs collaboration between the government, the insurance industry and wider society.
Since taking office last month, prime minister Andy Burnham has repeatedly committed to turning around the UK’s social care system, with the opening of Baroness Casey’s nation consultation the latest move.
And last week, Johnny Timpson suggested income protection product innovation could help tackle these issues besetting social care in England.
When asked about the insurance industry’s role in fixing the situation, the Association of British Insurers (ABI) told Health & Protection a collaborative approach will be needed.
“Tackling long-term, large-scale issues such as social care will require a collaborative approach from government, industry and wider society,” the ABI said.
“People access and fund care in different ways, and it is important that any reforms consider how public and private support can work together to help people confidently plan and maintain their financial wellbeing throughout all stages of life.”
Encouragingly, research from Vitality showed there was consumer appetite for long-term care insurance products.
Dovetailing with state provision
In terms of how these products could maintain financial wellbeing, Matthew Humphreys, campaigns manager at the Institute and Faculty of Actuaries, told Health & Protection they would need to dovetail with state provision.
“They would have to ensure that they are fair from an intergenerational perspective,“ he said.
“For example the working population today could pay a percentage of their earnings into an insurance policy or fund, but they could end up paying twice if they are also paying tax towards funding the cost of care for people in retirement if the government increases the level of state funding and moves away from means testing.”
Though Humphreys added that while another option is pre-funded insurance, a key issue with this option is take-up.
“Voluntary systems are challenging to get high take up rates, partly due to a lack of awareness of the costs of care, but partly because people don’t really plan for that far into the future,“ he continued.
“Our recent survey shows that three-quarters (77%) of UK adults, including retirees, have not taken steps to prepare for possible long-term care needs.
“An option would be to make insurance compulsory to get high take-up, but even a voluntary arrangement could be beneficial relative to the current system.
“There are a number of point of need solutions that could be used, such as equity release, immediate needs annuities, deferred needs annuities, but they rely on the individual having assets available to pay for their care and the products can protect against catastrophic care costs.”
Expanding the range of products
Alastair Gerrard, head of sales, marketing and account management at Gen Re, argued there is “significant” scope to expand the range of solutions available, enabling people to protect themselves against care costs much earlier in life, when the cost of providing that protection is substantially lower.
“We hope the review will consider how best to support the development of a sustainable private care insurance market,” he continued.
“This should include exploring ways to encourage and incentivise individuals to plan for potential care needs, helping to improve financial resilience, increase choice and ease pressure on the state over the longer term.”
Rehabilitation and prevention services
Nathan Hill, head of life and health client markets UK and Ireland at Swiss Re, stressed that it was important to remember that adult social care was not only aged care.
“Future reforms will be a chance for insurers to reassess how they support government services across the whole adult population,“ he said.
“For working age people, we will have the chance to look at health covers, critical illness and disability insurance support.
“Rehabilitation and prevention services are also an established part of the insurance offering, and are something that could also be considered as part of any government review.”
Lessons from across the channel
Though Hill added there are strong international examples of how the government can successfully work with the insurance sector.
“For example, the success of long-term care in France,” Hill continued.
“In this case, the government covers a majority of the social care needs of the older population.
“Private insurance then fills in the gap for middle and higher income earners – currently around 1.4 million policyholders
“A 60-year-old can buy an annuity for between €40-70 a month.
“This is affordable and covers the typical costs for a room and meals at a nursing home.
“Products commonly pay out when the insured fails three out of five activities of daily living (ADLs), where washing and dressing are combined.
“This system works because the insurance participation is carved out, well defined, and priceable.”
