Private insurance for elderly care: no growth without better communication and customization
Due to aging, private insurance for long-term care and annuities are likely to become more important. Up to now, however, interest in such products has been very limited and less than might be expected. Negative selection due to health and longevity inequalities is seen as an important cause of this; if people with an increased risk profile in particular insure themselves, the premiums increase and the products become less interesting for the large group with a lower risk. Combining both products in an integrated insurance policy can reduce this selection problem. However, Netspar research shows that apart from negative selection, the low level of interest is also explained by substitution by social insurance, mistrust of insurers, financial illiteracy and a lack of risk awareness. For a more inclusive insurance market, it is important to take all of these factors into account. Applying insights from behavioral economics – through smart standard options and product communication – can help to present these products more effectively.
The results of the research suggest that integrated products, which are only aimed at solving risk selection, do not increase demand. An insurance policy that complements the social safety net and responds to preferences other than risk preferences can be successful in this, say the researchers at Erasmus School of Health Policy & Management. This even applies to countries where elderly care insurance is not yet available.
Based on these findings, a number of measures are obvious to stimulate the demand for these products. First of all, the government can create more clarity about the future distribution of the costs of elderly care and longevity. If it is clear which costs are to be borne by the collective and what is expected from the individual, people can respond to this. The government and insurers could also reduce or remove mistrust of these insurance products through legal and contractual guarantees. Insurers can also try to increase financial literacy and risk awareness by offering information more simply and comprehensibly. If it is then easier to take out insurance, people with little financial knowledge can also make an appropriate choice. Finally, the results suggest that a smarter way in which the products are presented can be effective in increasing interest in this.
Read the paper ‘A systematic review of the reasons for low uptake or long-term care insurance and life annuities: Could integrated products counter them?‘ From Timo R. Lambregts and Frederik T. Schut (Erasmus School of Health, Policy & Management).