Several providers are working on dual life insurance and long-term care protection products to help boost cover and reinvigorate the market.
Vitalitylife has already launched such a product, while Zurich told FTAdviser it is set to introduce something similar next month and AIG Life - formerly Ageas Protect - is set for a third quarter launch.
Speaking to FTAdviser, Tony Mudd, St James’ Place divisional director for development and technical consultancy, said he has spoken to a number of insurance companies on ‘dual’ benefits contracts: a whole of life policy that pays on death, and includes cover for those in need of care.
“On average someone in a care home will last about four years, so if they pre-pay a significant sum all the life company are missing out on is an average of four year’s worth of premiums and they’re paying the sum assured early, so there’s only a slight cash-flow disadvantage.
“On the basis they’re only paying a percentage of the sum assured, that should cover the costs they lose and importantly the individual has a contract that either way will pay out on death or help pay for LTC.”
Deepak Jobanputra, deputy chief executive at Vitalitylife, told FTAdviser that ahead of their product launch in November 2014 the firm asked both consumers and advisers what they thought the price would be for the additional long-term cover on a whole of life policy. Most said costs would double, while it actually only adds around 30 per cent to premiums.
Zurich confirmed it is planning to pilot an insurance product which will combine protection against the financial impacts of death or the loss of independent existence, as measured by certain predefined tests.
Their research suggests a consumer preference for policies which cover different eventualities rather than a care need in isolation. Peter Hamilton, head of retail propositions at Zurich, said there will be different ways of approaching the problem.
“For some who have existing assets, immediate needs annuities or equity release may be the answer, but we also believe there is a place for an insurance based solution for those who don’t have the means or the desire to build up the appropriate funds in advance.”
Mr Mudd explained that there were a number of attempts to introduce more protection-based long-term care contracts in the 1990s but they were not popular.
However, following the publication of Andrew Dilnot’s report into care funding in 2011 and the subsequent Care Act bringing in a cap on costs by this time next year, there is more scope for insurers to look at product development.
Mr Mudd said he was not aware of any other providers looking at this market, noting that others are likely to see what success these initial products get and come in with what they hope to be improved versions later.
“We’re only ever going to get improvements in the contract when other companies come in an drive competition.”
He hopes that advisers will see this as something they will want to talk to their clients about, while the protection insurance industry could do with a shot in the arm.
“At SJP we’ve seen modest increases, of about 6 per cent in 2013 and 10 per cent in 2014, but I think this innovation will increase the sale of protection, which is very important.”
“It’s essential that all advisers talk to their clients about protection and I’m hoping that this will be another reason to go back to clients and have the conversation again.”
peter.walker@ft.com
