Industry doubts 'rush of new products' for social care

On September 7, prime minister Boris Johnson promised a cap on the amount paid by any one person for social care in their lifetime. Set at £86,000 for people entering care from October 2023, those applicable for state support will need to have assets of under £100,000.

At the same time he said the government would work with the industry to develop insurance products to cover the cost of care under the cap. 

With a cap in place, theoretically insurers have more certainty to accurately calculate the social care costs facing customers later in life. But experts aren't so sure the cap will lead to "certainty" at all.

Nicky Cave, managing director at Eldercare Solutions and an accredited adviser of the Society of Later Life Advisers, told FTAdviser: “I doubt there will be a rush of new products but hopefully the existing, at need product will start to look like a more affordable way of properly limiting those catastrophic [care] costs.

“Last time around [the care cap] didn’t reassure insurers sufficiently for them to develop products and so I am not sure this time around will be any different.”

People’s priorities are paying off their mortgage or paying into their pensions. Or lots of other things that they prioritise above planning for care home costs.Nicky Cave

Cave referred to the £72,000 cap set out in the Care Act 2014, due to start in 2016 but which fell victim to a government U-turn in 2015. Then health secretary Jeremy Hunt quietly shelved the care cost limit, postponing it until 2020.

“The government realised that getting everyone who needed care assessed, when they can barely cope with assessing only those entitled to local authority support, was too mammoth a challenge. 

"There is of course a chance the same could happen again.”

Without knowing what the variable local authority rates of care will be set at, Cave was “not sure how much certainly any of this gives anyone, especially as there will inevitably be regional variation”.

She added that pre-funded insurance “didn’t take off” when the industry “had a very clear and simple system” in the 1990s and 2000s. 

“Maybe that’s because the costs were prohibitive and having a cap will make it more affordable. But actually, people’s priorities are paying off their mortgage or paying into their pensions. Or lots of other things that they prioritise above planning for care home costs.”

Existing products

Cave reckons existing products such as care fees annuities, are an attractive option. That is, “if consumers ever find out about them”.

“These are being purchased by people going into care now, for whom it should be easier to predict when and by how much the care cap will benefit them. Therefore they could potentially buy the annuity for a lower annual income, making it cheaper.  

“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.

There are lots of different products saying they’re the solution. There’s a real need for good advice on them.Andrew Gething

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.

"The cap helps people to plan with greater certainty, though many will still need potentially to meet a significant part of their overall costs," he said.

Hamilton continued: "Insurers are likely to look more closely at the opportunities now there is more certainty as to what the state is likely to provide.

"It’s too early to say what shape those products might take, but it may well involve looking at how customers can meet the first £86,000, and what we can do, possibly with the benefits of technology, to help customers stay in their own homes for longer."

The long-term care market has faced a number of problems, according to Hamilton, not least in terms of what the client can expect the state to provide. 

The cap is helpful in managing expectations, though of course it doesn’t cover food and accommodation costs, and much will depend on the full detail of the cap and when the ‘meter’ starts and stop.Peter Hamilton

“The need for some kind of provision is increased as people not only live longer, but also live longer with illness.”

This, compounded with care costs spiralling upwards and a trend towards smaller families more geographically spread, which makes it harder to rely on relatives, means it’s likely the need for more products funding social care will rise.

Hamilton agreed with Gething that many people will “absolutely need” to receive advice on their next steps.

“One thing local authorities can do is signpost those looking for care support to advisers who specialise in the area.”

As part of the government cap, local authorities will assess which care costs are included, which are excluded, from the overall total people pay.

“The cap is helpful in managing expectations, though of course it doesn’t cover food and accommodation costs, and much will depend on the full detail of the cap and when the ‘meter’ starts and stops,” said Hamilton.

“There will be a very legitimate debate on how it is funded, and how fair or otherwise that is to different people.”

ruby.hinchliffe@ft.com