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22 October 2001

LONG-TERM CARE INSURANCE TO BE REGULATED

Long Term Care Insurance - Summary of Responses to December 2000 Consultation Document

Long-term care insurance (LTCI) is to be fully regulated to help prevent people from buying unsuitable policies, Ruth Kelly, Economic Secretary to the Treasury announced today.  The Financial Services Authority will have responsibility for regulating the selling and marketing of these products.

Insurance for the provision of care in old age or long-term illness is a relatively new product and its uptake is expected to grow, given the right conditions.  The Treasury believes it is important to give consumers adequate protection at an early stage of the development of the LTCI market.

Ruth Kelly said:

“As with pensions and ISAs, we want to help people to provide for their security whenever they can.  

“Long-term care insurance can be expensive and tends to be sold to people at the same time as wider financial planning for the last few years of a person’s life.   We think consumers need protection when making critical decisions at this point in their lives.

 “If someone eventually needs care, they don’t want to find that their insurance won’t pay out for the level of care they expected when they paid the premiums.  Regulation seeks to prevent this type of scenario”.

“By asking the Financial Services Authority to regulate the sale and marketing of long-term care insurance, we hope to protect consumers and allow the market to develop within that regulatory environment.”

Notes to Editors

1.         In December 2000, the Treasury published a consultation document on long-term care insurance (Treasury press notice 149/00), seeking views on whether the selling and marketing of LTCI should be regulated by the FSA.  (Consultation document available at www.hm-treasury.gov.uk).

2.         39 responses were received as a result of the consultation.  Over half agreed with the Government’s preferred option that the FSA should be given the power to regulate the selling and marketing of long-term care insurance products. (Summaries of the responses to consultation are available at www.hm-treasury.gov.uk).

3.         The present market for long-term care financial plans is very small.  Since they were first sold in 1991, 14 companies offer them, with only about 34,000 policies currently in force. 

4.           In its report in March 1999, the Royal Commission on Long Term Care for the Elderly made a number of recommendations, including that the Treasury and Financial Services Authority (FSA) begin work to bring all long-term care insurance under full conduct of business regulation.   In addition the Treasury Committee and the Joint Scrutiny Committee on the Financial Services and Markets Bill (now FSM Act) both recommended that the selling and marketing of LTCI be regulated.

5.         In its response to the Royal Commission, the Government made a number of decisions that might help to reduce the cost of LTCI.  These included: provision that the value of a person’s home should be disregarded for up to three months after admission to residential care; that there should be free NHS nursing care from 1 October 2001; and that capital asset limits should be up-rated to their 1996 level with effect from April 2001.

6.         This meant that LTCI might be more attractive to consumers as the inference was that premiums would be cheaper and more consumers could afford the insurance.  The Government consulted on whether LTCI should be regulated by the FSA on this basis.

7.         The next stage is for the Government to consult on the definition of the LTCI product to be regulated, and for the FSA to consult on its rules, before inviting firms to seek authorization.

8.         This and other Treasury press notices are available at www.hm-treasury.gov.uk.

9.         Media enquiries should be addressed to Liane Farrer at the Treasury Press Office on 020 7270 5192.

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