A new model of social care is needed to break the “vicious circle” that prevents the financial services industry from offering effective help to people who need long-term care, Stephen Haddrill, the director-general of the Association of British Insurers, said on Tuesday.
His call came as the government is preparing a green paper on the issue covering England and Wales. Meanwhile, Scotland’s approach of offering “free personal care” is seen as having run into into trouble.
Few financial products are available to help pay for care at home, or for residential or nursing care, because the industry faces “a vicious circle of unquantified longevity risks, tight regulation, higher operating costs, few participants and tiny market penetration,” says Mr Haddrill.
His comments come in a book to be published on Wednesday by one of prime minister Gordon Brown’s favourite think-tanks, The Smith Institute.
The market does not work well because it is difficult for insurers to spread risks, longevity estimates keep rising, the products are arguably more regulated than any other and the whole deal is “an unattractive proposition for the financial services industry”, Mr Haddrill said.
To create a virtuous circle, he said, the government needed to look at risk-sharing with the private sector, incentives, the possible use of pension assets for at least some people, and a more proportionate regulatory regime.
The industry would find it easier to design products if, for example, they only had to cover a set period of care, with the state picking up the risk if people lived longer.
Alternatively, products could meet a set level of cost, or individuals’ houses could be protected from means-tests if they had made a given level of provision themselves.
For those with larger pensions – say £20,000 ($39,000) a year – it might be possible to take a lower pension of, for example, £18,000 in the knowledge that that could double to meet care costs after age 85, or when agreed criteria for care were met.
Tax relief on premiums of the kind that pensions attract would also help, Mr Haddrill said, as would an easing of rules that make long-term care policies “the most heavily regulated product in the UK”.
Such changes, according to Mr Haddrill, could produce a “win, win, win” for individuals, the state and the industry.