Long-term care insurance consumers to benefit from increased protection

Although the size of this market remains small (around 46,000 policies are currently in force) it is one in which consumers are at risk if not properly informed and advised.

The new rules:

• ensure that customers have an enhanced level of protection through FSA regulations covering issues such as the suitability of financial advice, product information, financial promotions, disclosure of charges and cancellation rights;

• apply to all LTCI products both insurance-only pure protection products and investment-based products (for example immediate care annuities or LTCI bonds);

• introduce some new pre- and post-sale information requirements and risk warnings to help consumers make informed choices about the type of product and amount of cover they need. These will, for example, include a requirement to provide customers with clear information about the key features of an LTCI product, including whether premiums are subject to review. Firms will also be required to make customers aware of the importance of regularly reviewing their circumstances and the likely costs of long-term care to ensure that their needs continue to be appropriately covered;

• introduce enhanced training and competence requirements for all LTCI advisers (and supervisors), including a new LTCI examination. This means that all LTCI advisers (including existing advisers) will need to pass an appropriate exam to advise on or sell LTCI. (Existing advisers who have already been deemed competent to advise on LTCI will have until 30 October 2006 to pass the examination.).

• introduce new LTCI claims handling rules to increase consumer protection at the point of claim, when these policyholders are, by definition, particularly vulnerable, and:

• bring all LTCI products and services into the compulsory jurisdiction of the Financial Ombudsman Service and the Financial Services Compensation Scheme.
  

Notes for editors

1. The new rules, which were published in May 2004 in PS 04/14 ("Regulation of long-term care insurance Feedback on CP200") are available here.

2. LTCI products were first marketed in the UK in the early 1990s. According to ABI data, by the end of 2003, there were approximately 46,000 LTC policies in force with a total value of just under 600 million. More than 90% of Long-Term Care policies are distributed by IFAs.

3. The basic purpose of LTCI is to help consumers provide for all or part of the cost of long-term care. Long-term care refers to care that is needed on a continuing basis for the foreseeable future, for example, as the result of permanent conditions such as arthritis, a stroke or dementia.

4. LTCI policies have evolved over the past decade and they come in a range of different and often complex forms. There are two main types of LTCI products pre-funded (involving pure protection insurance and LTCI investment bonds) and immediate care plans. The latter now account for the majority of sales.

5. HM Treasury announced its intention to bring the sale and marketing of LTCI products within the FSA's regulatory scope with effect from 31 October 2004. The FSA consulted on the proposed regime for long-term care insurance in September 2003 (CP200 Regulation of long-term care insurance) and issued Policy Statement 04/14 containing the final rules in May 2004.

6. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection of consumers; and fighting financial crime.

7. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.