29.01.15
Insurance companies show no interest in care insurance
Insurance companies have no plans to introduce products to help people plan for their care needs in old age, it has been revealed.
A BBC investigation spoke with 17 major insurance companies who said there was not enough interest in such policies amongst the public.
Creating a market for care insurance was a key pillar in the government’s strategy when it decided to introduce a £72,000 cap on care costs for over-65s. At the time David Cameron said he believed the plans would “open up an enormous market”.
The new cap – a version of which was suggested in the Dilnot report – goes into effect from April 2016. Once it does, those over 65 will spend a maximum of £72,000 on care costs, after which the government picks up the tab. However people will still be liable for £230 weekly living costs if they are in a care home.
The original Dilnot recommendation was for a cap of £35,000, or else a figure in the £25,000 to £50,000 range – but the government considered that limit too low and costly.
Currently, the only products on the market to help with care costs are immediate needs annuities, which require people to pay a one-off lump sum of around £100,000 when they start needing care. The insurance company then pays out an income over the rest of the policyholder’s life to cover the costs of care.
However, some people have reported the policies have failed to keep pace with the rising costs of care and due to the upfront money involved they are too expensive for many people.
Care minister Norman Lamb said: "I do challenge the insurance industry – don't be conservative on this. Step up to the plate. They have a responsibility in my view too. We need to do this collaboratively.
"We've taken the steps that they wanted us to take to enable them to do these reforms. And I think they need to be ambitious and to recognise the importance of providing products so that people can plan for old age."
But Yvonne Braun, of the Association of British Insurers, told the BBC the industry was ultimately responding to the "law of supply and demand".
"If you wanted to sell to somebody in their 30s, 40s and 50s, or even 60s, I think you would find it very very difficult. Younger people... have other financial priorities – specifically paying off their mortgage and supporting their children."
She said it was more likely that other insurance products, such as critical illness cover and life insurance, would be adapted to cover care costs.
James Lloyd, director of the Strategic Society think tank, said there were always doubts the insurance industry would develop products.
"The government could lower the cap to try to encourage more interest, it could just accept that people will have to pay the £72,000 in costs or develop its own state insurance model – that has happened in Germany. But there really isn't an easy answer."
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