Sunak looks to insurers to help with social care costs

UK social care updates

Chancellor Rishi Sunak has told Treasury officials to step up talks with the insurance industry over the possible launch of new products enabling people to fund future social care costs in England.

Sunak wants to encourage insurance companies to bring forward the products, arguing the government’s social care reform unveiled on Tuesday has given the certainty the sector has been demanding.

As part of the blueprint, Sunak announced an £86,000 cap on the total lifetime adult social care costs for any individual in England. The state would intervene to pay costs above that level.

If insurance was available to cover expenses up to £86,000, it would help Boris Johnson claim he was honouring the 2019 Conservative party manifesto pledge that “nobody needing care should be forced to sell their home to pay for it”.

A Treasury insider said: “The chancellor has asked officials to work with insurers to consider new products to help with social care costs. We’re hopeful that in time the new cap on costs will provide the clarity insurers need to create new products.”

However, ministers’ hopes of a robust insurance market to ensure costs below the cap would be defrayed have been dashed in the past.

The insurance industry proved reluctant to devise products after the economist Sir Andrew Dilnot in 2011 unveiled a social care reform plan that had been commissioned by David Cameron’s government and is similar to the one announced on Tuesday.

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But Rob Yuille, assistant director for the Association of British Insurers, a trade group, suggested that in some respects the landscape had changed over the past decade. 

Pension reforms led to many millions more people saving into retirement pots they could access, and there had been continued growth in property values alongside expansion of equity release loans. This was in addition to the small market of existing insurance products designed to cover care costs, bought in advance or at the point of need.

“None of [the options out there] is a silver bullet solution for care funding, but together they form a suite of options,” said Yuille.

Consumer demand would be the key factor in how the market developed, he added. People would need access to advice and guidance to understand “what costs they might face, so that they can plan for the future.”

Several options are already available to people to pay for long-term care needs, according to insurance experts.

Firstly, there are so-called immediate needs annuities, where people pay a lump sum in return for a regular income that can cover care needs.

These costs can also be met by certain types of life insurance policies, paid for over the long-term by an annual premium.

Another route to pay the costs is through equity release schemes, but these typically require people to stay in their own homes and so are not suitable for funding residential care.

However, people’s take up of products to cover care expenses is currently limited, said Andy Briggs, chief executive at life insurer Phoenix Group.

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“The challenge of industry solutions is that people generally don’t think it will happen to them, and so the individual demand for insurance products is low,” he added.

Some insurers welcomed the clarity from the government about the £86,000 cap on lifetime care costs. “One of the key issues that have prevented any kind of market in insurance products developing at scale [has been] a lack of certainty”, said Peter Hamilton, head of market engagement at insurance group Zurich’s UK arm. 

Products could be designed that met the cost of care, while also funding technology such as sensors and alert systems that help people stay in their homes, he added.

Michael Wade, an industry veteran who advised Theresa May’s government on social care, said he understood the prime minister was keen for the insurance sector to play a role in improving care for elderly people that went beyond the provision of products. 

This could include using their vast portfolios to invest in retirement villages or technology to allow people to remain in their own homes.

“Fundamentally it’s about how you reduce demand [for care] because if you can reduce demand . . . you reduce the cost of what you have to fund,” said Wade.



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