1 : 7 - Regulatory Considerations Relating to Long-Term Care Insurance Flashcards
Understand the regulatory considerations that apply to long-term care insurance: affordability, suitability, appropriateness; Financial Conduct Authority’s (FCA’s) ‘packaged product’/retail investment products regime; role of Financial Ombudsman Service and Financial Services Compensation Scheme; training and competence requirements for long-term care insurance; provision of pre- and post-sales information; claims handling rules; convertible products
What legislation covers LTCI
It is a regulated activity under the Financial Services and Markets Act 2000 (FSMA) and therefore subject to regulation by the FCA.
What are the generic consumer risks identified by the FCA?
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- Complexity of choice
- Consumer profile
- Interaction with state benefits
- Training and competence
- Third-party involvement
- Long-term nature of commitment
- Product costs
How does complexity of choice affect LTCI?
The range and complexity of different products makes like-for-like comparison difficult.
How does consumer profile affect LTCI?
Consumers are typically older when they buy LTCI products.
While customers tend to be relatively wealthy (particularly in terms of assets), they are likely to have a limited (even reducing) income stream, which could make any significant future increase in their premiums potentially problematic. It
How does training and competence affect LTCI?
In order to be able to give comprehensive and reliable advice, LTCI advisers (and their supervisors) require specialised knowledge of the complexity and variety of products available, the interaction with state benefits, relevant law (including inheritance and tax law), and care costs and provision.
How do product costs affect LTCI?
LTCI products are relatively expensive and they are generally bought by middle to high income/net worth individuals.
Costs vary widely between providers, because the market is relatively new and there is only a limited claims history against which to price the policies.
How are LTCI premiums reviewed?
What can this mean?
Most pre-funded policies, including single-premium policies, include a review clause (typically every five or ten years).
This means that a consumer can face subsequent demands for significant additional lump sum contributions (for single-premium policies) or significant increases in levels of premium (for regular-premium policies).
What is the Financial Services Compensation Scheme (FSCS) used for?
The FSCS protects consumers when UK-authorised financial services firms fail: it can compensate customers of those firms if the firm has stopped trading or does not have sufficient assets to meet claims.
Who governs the Financial Services Compensation Scheme (FSCS)?
It is governed by the FCA
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The Prudential Regulation Authority (PRA): the latter covers claims relating to deposits, general insurance, and life assurance.
