Social careFeb 10 2023

Social care reform poses 'serious regulatory concerns' for insurers

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Social care reform poses 'serious regulatory concerns' for insurers
Current Secretary of State for Health and Social Care, Steve Barclay [Andy Rain/EPA-EFE/Shutterstock ]

A trade body representing UK insurers has said the government's proposed asset cap for social care could risk people only partially benefiting from their insurance products in the future.

Back in September 2021, former prime minister Boris Johnson proposed to raise the upper capital limit from £23,250 to £100,000, and the lower capital limit from £14,250 to £20,000.

This limit stipulates how much money a person can have whilst qualifying for financial support from their local authority for social care.

Johnson also announced a £86,000 cap on lifetime care costs, which would apply to personal care costs only and not cover things like accommodation and food - otherwise referred to as ‘hotel’ costs.

The unintended disincentive created by the new means-testing rules would affect a range of products.ABI

Designed to be implemented in October this year, the reform - which had been some 10 years in the making - was delayed until 2025 in chancellor Jeremy Hunt's Autumn Statement last year.

In a report published yesterday (February 9), the Association of British Insurers said it was worried about how these reforms could impact the overall funds some of the UK's population will receive for their social care in the future.

"The risk of customers only partially benefiting from a [insurance] product raises serious regulatory concerns," the trade body said.

"It would undermine the product’s objectives and would very likely fail regulatory tests of ‘fair value’, including under the Financial Conduct Authority’s new consumer duty.

"Detriment to customers would also be damaging to the public’s trust in the sector. The unintended disincentive created by the new means-testing rules would affect a range of products."

The ABI laid out some examples to demonstrate how the caps impact funding support, based on research by the Pensions Policy Institute.

It showed a self-funder could expect to reach the care cap after six years and eight months.

But an individual using domiciliary care and who receives means-tested support would take much longer.

For example, someone with £25,000 in assets and in £300 income per week would reach the care cap after around 13 years and seven months.

Some of the insurance payout would in effect be deducted by local authorities.ABI

The report also pointed out that if housing wealth was disregarded for people receiving domiciliary care, or for whose spouse or partner lives in the property, only 20 per cent of people would have assets over the government's proposed upper capital threshold.

The affects of these means-tests would also stretch to insurance products. The ABI looked at the impact of an insurance or long-term savings payout on people with different incomes and wealth.

It found that the government's reform would create some "unintended consequences" which impact the scope and potential for product development.