 By Colin Cummings, Director, Actuarial and Insurance Management, PwC
Following the Government’s commitment in February 2013 to cap lifetime social care costs for consumers in England in July, the Care Minister Norman Lamb put forward a consultation paper on the implementation of the reforms. This proposed that financial services can play an important role in helping consumers plan for their social care needs. The provision of social care – or rather how to pay for it – is not a new issue; it has been a political and social challenge for decades.
With an ageing UK population and changes in the willingness of family members to provide care for elderly relatives, there has been a shift in recent years in the need and subsequently the demand for residential care.
But who is going to pick up the cost, and what opportunities does this create for the insurance sector?
When the Commission on the funding of Care and Support, led by Andrew Dilnot, published its report on the social care funding system in England in July 2011, it reaffirmed the views of many working in the sector: that the current system is not fit for purpose and was in need of urgent and lasting reform. With local authority-led care services across the country subject to different eligibility criteria, consumers faced a ‘care lottery’ and confusion at a time when decisions directly impact their quality of life. However, the report also highlighted the very real issue of cost. There is currently little in the way of financial protection for the cost of social care in older age. The market for financial products designed to meet care needs is limited and in most cases, consumers have to pay for these costs themselves.
The Dilnot report represented a positive step for consumers. It recommended a monetary cap on the lifetime contribution individuals would need to make towards their social care costs with any further costs being met in full by the State. It also recommended financial support towards residential care for individuals with modest income.
When the Health Secretary, Jeremy Hunt, announced the Government proposals for social care funding reform in February, it signalled, critically, that the reforms were endorsed by the Treasury. The reforms include a £72,000 cap on social care costs and a revised means test whereby individuals with less than £118,000 in capital will be eligible for financial support in paying care fees. These will be effective from 2016.
With greater clarity around future care costs, there is now a role for the insurance industry to play in providing financial solutions. Throughout the reforms process, PwC has helped to facilitate a dialogue within the industry to understand how the State and insurance sector can work together to provide a range of services to support a ‘capped’ model. The insurance industry is keen, in principle, to support the Government by launching product ranges to support consumer needs.
It is likely that existing products will be part of the solution. In the near future at least, consumers at the point of needing care will already be retired with their assets consisting only of existing savings and property. We are likely to see markets develop further for offerings such as immediate needs annuities and equity release-type products. Longer term, when consumer awareness is more widespread and a market is developed, pre-funded products may be viable. For example, there may be the opportunity for insurers to enhance pension products and encourage consumers to consider saving for their wider retirement needs, including long term care. New, innovative product designs will no doubt emerge over time once further work has been done by insurers to understand consumer demand and appetite for insuring away this risk. We may see more partnerships between insurers and healthcare providers or more access to group schemes.
For a market to develop, consumers will also need to have sufficient access to the option of regulated financial advice. While this route into social care may not be required by all, it will be beneficial for some, particularly those who want to self fund. In the current regime, not all advisers are accredited to sell social care products and therefore a mechanism will need to be put in place to create the required capacity.
The role of the State will be crucial in generating demand within a developing social care market. Evidence suggests that the UK consumer is currently unaware and unprepared to deal with the challenges of social care costs. Government messaging will be fundamental in effecting a step change in consumer behaviour and making planning for social care a social norm. However information alone does not drive behaviour. For information to be effective, it needs to be complemented by some sort of compulsion on behalf of the consumer, such as the recent pension auto-enrolment initiative. While this initiative may not be the right solution for social care costs, some forms of Government compulsion are already used in international social care markets to enable demand.
The social care debate evokes strong views, perhaps due to the stage in the life cycle at which important decisions are taken. Increasingly, it is down to the family to help to make choices, however this does not guarantee that the choices are in line with the individuals’ wants. This new consultation provides an opportunity for all parties – from insurers to the care sector to individuals - to have their say and to shape the way that social care is provided for in the future. At a time when corporate social responsibility is high on insurers’ agendas, there is a clear opportunity for the industry to help create an insurance market that brings certainty to social care costs.
|
