The French long-term care (LTC) insurance market has grown to be the second biggest in the world, after the US. Now consisting of about a million policies in force, up from 750,000 last year, the market has developed through a combination of foresight by insurers, state intervention, good marketing and catching the mood of the public.
While the first LTC insurance policies were launched over 10 years ago, the market began to grow significantly with the introduction of the Prestation Spécifique Dépendance (PSD), a means-tested benefit designed to help pay long-term care costs, now superseded by the allocation personalisée d’autonomie (APA). Unlike PSD, APA, which was introduced this January, is a nationally administered benefit, so entitlement conditions and benefits are the same wherever claimants live, and, crucially, the value of benefits paid is not deducted from the estate on death.
Naturally, this new benefit has received a warm welcome. APA is paid according to extent of disability, ranging from level 6 (no impairment) to level 1 (maximum impairment) and is income-related, although everybody is entitled to some payment provided they fulfil the disability criteria. Level 1 disability currently entitles an individual to a monthly benefit of E1,067, level 2 E915, level 3 E686 and level 4 – the lowest level giving entitlement – to E457.
These official disability measures form the basis of claim criteria for LTC insurance, with benefits graded according to the level of impairment. Groupama’s new plan, for example, pays 100% benefit for level 1, 50% for level 2 and a lump sum for level 3; the last is designed to fund home improvements that enable the planholder to remain in their home for as long as possible.
The market is experiencing a fair amount of change, with some new entrants and the updating of products by existing players. About 10 insurers have significant volumes of business. Groupama is the market leader, with 200,000 policies in force. Its updated product is due for launch later this year. Crédit Agricole-Predica has been writing LTC insurance for a year and has sold around 50,000 policies. Its innovative plan pays a small lump sum for level 5 disability (when there is no entitlement to APA), half monthly benefit for levels 3 and 4 and full monthly benefit plus a lump sum for levels 5 and 6.
A very recent entrant is April Group, which designs products on behalf of insurers and distributors and provides marketing and customer relationship management. Its product, underwritten by a mutual insurer, was launched in June and pays 50% benefit for level 4 disability, rising to two-thirds for level 5 and 100% for level 6. “Sales have begun slowly but we are confident that they will grow steadily,” says April’s Magali Etaix. “We think there is a promising market because French people now understand the product and the need for it.”
The controversy over PSD (universally disliked because of the way payments varied between départements and because of the ‘claw-back’ on death) and the introduction of APA has certainly increased awareness of LTC issues, including the realities of paying for care. Pierre Beaumain, chief executive of Groupama Vie, says: “The new APA creates an opportunity for private insurers. We believe the market will grow even more in two to three years’ time.”
Sara Fenelon at reinsurer SCOR shares Beaumain’s optimism but believes that insurers will still have to work hard to develop their business. “Growth in the market will depend on good marketing, strong advertising and training sales people,” she says. “Some companies have developed LTC insurance products but sell very few because their agents do not understand the product well or are not confident about selling it.” Banks that tackle the training issue can leverage their relationships between staff and customers. This is a key ingredient of Crédit Agricole-Predica’s recipe for success; the bank is strong in rural France, where relationships are long-standing and its representatives understand the circumstances and needs of individual customers.
Fenelon also points out that the increased incidence of long-term care dependency means that more families have experience of looking after elderly relatives and finding them care along with the necessary funding. This is a powerful way of understanding the practical implications of long-term care and how much it costs. Beaumain at Groupama believes that middle-aged, as opposed to elderly people are key to LTC insurance market development in future. They should be buying LTC insurance – and not necessarily for themselves. “This group should be convincing their parents of the need for LTC insurance – and maybe even paying the premiums for them,” he says.
So far, although LTC premiums are much lower at the younger ages, the product remains one that is bought by older people – typically in their early 60s. It is the old story of higher spending priorities and a problem that has little resonance with younger age groups – who, in fairness, may have other financial concerns, including pension funding. As a result, advertising of LTC insurance tends to be concentrated on magazines and media with an older readership and daytime TV.
But while the market is looking pretty healthy in terms of sales, both now and, especially, into the future, is it sustainably profitable? According to Beaumain, Groupama has had about 1,000 claims, but even so, experience is too limited to tell whether the risk pricing is right. He says their underwriting rules are both strict and strictly applied, and claims are carefully assessed with possible non-disclosure in mind.
However, a multitude of factors can affect claims experience, such as advances in medical science, changes in the availability and delivery of long-term care, and new lifestyle and environmental influences together with their health implications. Social trends and policyholders’ attitudes to claiming are difficult to predict but can have a significant impact. Even with the benefit of a large volume of accumulated experience, the old adage that the present is no guide to the future is very true in LTC insurance. This is why SCOR’s research work in conjunction with the Institut National de la Santé et de la Recherche Médicale (INSERM) should pay off. The aim is to develop a thorough understanding of disability in old age: its causes, attitudes to coping with it, the scope for treatment and rehabilitation, the mortality implications and future incidence patterns.
So far, LTC insurance has escaped the attention of the regulators. Companies are mindful of the need to deal fairly with older customers who, by the time they come to claim, may well be in a vulnerable position. Sensitive claim handling, along with fair terms and conditions and reasonable pricing are essential. Nevertheless, the CCA (the audit board for insurance) is keeping an eye on products and practices, and may decide to make LTC insurance a regulated product in future. Some observers believe that regulation is only a matter of time.
The million LTC insurance policies in force suggest that about one in 12 people over 60 is covered. That’s pretty impressive for a relatively new specialist product. European countries could do worse than follow the example of France and its insurance industry.
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