PROTECTING LONG TERM CARE INSURANCE BUYERS

New CAT standards and full regulation can help to protect buyers of long term care insurance (LTCI) and savings products schemes, Economic Secretary Melanie Johnson said today.

Launching a consultation document on options to protect those making financial plans for long term care, Miss Johnson said:

"It is essential that consumers get the right protection when buying savings and investment products. This is especially important where buyers may be vulnerable or taking decisions at a time of personal stress.

"We have decided that new CAT standards are needed to set clear minimum standards for long term care insurance plans. These will help buyers to know exactly what assistance they will get, and when, and to shop around to compare available plans so they can find the type best suited to their personal and financial circumstances. I expect plan providers to develop products meeting these minimum standards quickly once the consultation on the detail is completed.

"The consultation considers in detail the appropriate cover, access and terms the CAT minimum standards should provide. Buyers will know exactly what changes in their circumstances will trigger benefits, and ensure sympathetic, professional assessment of their needs.

"This will avoid them or their families wrangling over whether they meet the criteria or not, avoiding unnecessary delay in treatment, nursing or care. CAT standards will also set out how and how quickly the claim should be processed and how benefits will be paid.

Concerning calls for the regulation of the selling of LTCI plans by the Financial Services Authority (FSA), Miss Johnson said :

"We are asking for comments on the regulation of information and advice about these products, whether CAT standard or not. We want to hear the views of consumers and the industry about the best way to introduce regulation if we accept that this best for protecting those buying LTCI plans.

"The consultation paper considers four options for regulation. Our preferred option, if regulation goes ahead, would be for full regulation of advice as well as information about LTCI plans.

"Many people consider LTCI as part of their wider financial planning for the future, often as part of regular discussions with an independent financial adviser. It seems sensible that advisers, often already regulated advising on other investments, should also be subject to regulation when selling a product as important as LTCI.

The consultation paper sets out the background to the development of the LTCI market, including a number of recently announced Government measures which will reduce the amount buyers will need to provide to bridge the gap between income and the costs of long term care. These include free nursing for those in care, changes to the treatment of capital assets, increases in state pensions and the minimum income guarantee, and the benefits of the new pensions credit.

It sets out four options :

1. A voluntary code of practice and CAT standards without statutory regulation.

2. Partial regulation, with FSA authorisation of plan providers and a standardised disclosure regime covering the information provided to potential purchasers.

3. Full regulation of information and advice on LTCI plans, with authorisation and disclosure.

4. Full regulation of information and advice on all medical insurance plans, with authorisation and disclosure.

The consultation states the Government prefers the third of these options if regulation is adopted.

NOTES TO EDITORS

1. The Royal Commission on Long Term Care for the Elderly reported in March 1999. It recommended that the Treasury and the FSA begin urgently work designed to bring all private long-term care insurance within conduct of business regulation at the earliest possible date.

2. Alongside the Government's interim response to the Royal Commission Report, on 2 December 1999, the Secretary of State for Health, Alan Milburn announced that the Government would be exploring with the financial services industry how it could best design long term care insurance products, and other financial products to see if they could be made more attractive to a wider audience (DoH press release 1999/0728).

3. The Treasury set up a working party to take this forward in March 2000, with representatives of the Treasury, Department of Health, Inland Revenue, No 10 Policy Unit, FSA, Consumers Association, Age Concern, London School of Economics and the Association of British Insurers. The views of those supplying or distributing the products were provided by firms and advisors drawn from the financial services industry.

4. The Government's final response to the Royal Commission was announced on 27 July. It thought that three decisions in particular may have consequences for the long term care insurance market: · the value of a person's home to be disregarded for up to three months after admission to residential care; · free NHS nursing care from October 2001; and · capital asset limits to be up-rated to their 1996 level from April 2001.

5. The consultation document covering CAT standards and possible statutory regulation of the advice and marketing of long term care insurance is also available on this website or in printed format from the address below.

6. Responses to the proposed CAT standards and the consultation document should be sent by 30 March 2001 to:

Gerry Foley
Home Financial Services Team
2nd Floor Allington Towers
19 Allington Street
London
SW1E 5EB

Tel no 020 7270 5292

fax no 020 7270 4694

7. Media enquiries should be addressed to Charles Keseru at the Treasury press office on 020 7270 5188.