“As ever, the problem is 85 per cent of self-funders going into care never get to hear about this product or are misinformed as to how it works by people putting them in the same camp as pension annuities or giving estimates of cost not based on reality.”
Andrew Gething, managing director at technology service provider MorganAsh, said he was “sure” the government’s announcement would have an effect on insurance products going forward. But he agreed with Cave that it's likely to impact existing products, rather than new ones.
“In the short term, I expect the insurers to amend or change their immediate needs annuity- or long-term care products to dovetail with this. But the market for this is small.”
Gething reckons immediate needs annuity products, which are designed to cover the shortfall between a person's income and the cost of their care for the rest of their life, are used by less than 1 per cent of people in care homes. “Only around 3,000 are sold each year” he said. According to the ABI there were about 5,000 such policies in force in 2010.
If insurers did consider new products, Gething said these would likely be to pay for the ‘hotel costs’. ‘Hotel costs’ include accommodation, food and cleaning, which are excluded from the government's £86,000 cap.
“The options are for a savings type product – which have been very hard to sell - or to use the assets of bricks and mortar, which personally I think is a more realistic option.”
A core aim of the social care cap is to avoid older generations having to sell their homes to pay for care.
But from an economical standpoint, Gething said selling homes “makes sense”, otherwise taxes need to be raised, which happened last week as the government hiked up National Insurance and dividend tax to pay for the cap.
He said reversing people’s mortgages, rather than insurers creating new products could be the solution.
This would point to equity release products, which have been rapidly growing in number over recent years.
But Gething thinks these types of products still collect “too much commission” and aren’t yet dissociated from their negative past - which saw them sold to families who couldn’t afford them.
Ultimately, he said: “We need some joined up thinking. There are lots of different products saying they’re the solution. There’s a real need for good advice on them.”
Some interest 'likely'
Peter Hamilton, Zurich's market engagement head, told FTAdviser insurers were at least “likely to look more closely at the opportunities” surrounding social care-related products following the government announcement.