Why insurers can price flood risk but not the cost of getting old, and what would need to change.
Last updated: 19 July 2026
Key takeaways
- Insurers can price flood risk because the state drew a clear line with Flood Re. Social care has no equivalent line, so no one, insurer or individual, knows what they are actually insuring against.
- Research from the insurer Just Group has found that 60% of over-45s think a year of residential care costs less than £60,000, against an actual self-funder average of £66,456, and that 85% of people who have arranged care for a relative were shocked by the bill.
- Auto-enrolment already moves billions of pounds a year through a mandatory 8% minimum contribution. Increasingly, industry and policymakers see that same plumbing, not a new product sold to consumers, as the most realistic route into funding care.
- Two government reviews, the Casey Commission on adult social care and the revived Pensions Commission, are examining adjacent problems in parallel, without a shared mandate to solve them together.
- A legal mechanism to defer care costs against the value of a home already exists under the Care Act 2014. It remains little used, well before any new insurance market is needed.
Every so often, the insurance industry revisits the idea of a mass-market product to cover the cost of long-term care. Every time, it concludes the same thing: the product cannot be built until the state decides, and states, what it will and will not pay for.
The comparison insurers reach for is flood risk. Flood Re exists because the government drew a boundary, insurers cover the risk, and a state-backed reinsurance scheme absorbs the tail risk in the highest-risk postcodes. Everyone in the chain knows their part. Social care has no such boundary. Local authorities means-test individually, thresholds vary by nation, and there is currently no cap at all on what a self-funder in England might pay over a long placement, as we set out in our look at care home fees in 2026. Without a fixed baseline, an insurer cannot say what risk it is actually taking on, and a regulator cannot say what level of capital it should hold against that risk.
A market that stayed small
A specialist product, the immediate needs care annuity, already exists for people who need to fund a care place today. It remains a niche corner of the market, bought overwhelmingly late in life and only by people who already have a financial adviser. Most families never reach it, because most families do not know what they are facing until they are already facing it. Research from Just Group found that 60% of over-45s underestimate the annual cost of residential care, guessing it at under £60,000 against a real self-funder average of £66,456, and that 85% of people who had helped a relative find care were shocked once they saw the actual bill. That gap between expectation and reality is not a communications problem. It is what happens when a cost is variable, unpredictable and dependent on how long someone lives with declining health, exactly the conditions an insurance market is supposed to smooth out, and exactly the conditions this one has never been able to price.
The plumbing already exists, just not for this
The one part of the system that has demonstrably worked is auto-enrolment. Every eligible employee now contributes a minimum of 8% of qualifying earnings into a workplace pension, with at least 3% coming from their employer. It was introduced gradually, defaulted rather than sold, and take-up has stuck. That is precisely the design a voluntary care product has never managed. Industry attention is increasingly turning to whether a small, additional contribution could run through the same payroll infrastructure that already moves billions of pounds a year without most savers noticing, rather than trying to persuade individuals to buy a standalone care policy, a purchase that requires imagining your own decline in a way most people would rather not.
The same instinct sits behind the "Guided Retirement" reforms in the Pension Schemes Act 2026, which will place a duty on workplace pension schemes to offer members a default retirement income product, alongside a new "targeted support" regime for firms from April 2026. Neither was designed with social care in mind. Both are evidence that government and industry already accept people need to be steered toward good later-life financial decisions rather than left to make them alone, at the exact life stage when a care-funding conversation would also make sense.
Two commissions, one missing conversation
Two separate reviews are now underway that between them touch every part of this problem, without being asked to look at it as one problem. The Casey Commission, chaired by Baroness Louise Casey, is designing the implementation of a National Care Service, with medium-term recommendations due in 2026 and long-term reform proposals not expected until 2028. Separately, the government revived the Pensions Commission in July 2025, bringing back Baroness Jeannie Drake, alongside Sir Ian Cheshire and Professor Nick Pearce, to work out why tomorrow's pensioners are on track to be poorer than today's. Its final report is due in 2027.
Both commissions are, in effect, asking the same underlying question: whether people will have enough, in income or in assets, to get through later life without falling back entirely on the state. Neither has an explicit mandate to answer it jointly. The gap matters most for the people with the least room to absorb it. Scottish Widows' 2025 Women and Retirement research put the typical gender pension gap at retirement at around £113,000, with women's median pension pot standing at £173,000 against £286,000 for men, and women more likely to fall short of even a minimum standard of living in retirement. A funding settlement for care that ignores who actually arrives at retirement with the smallest cushion will miss the people most exposed to exactly the risk it is meant to cover.
The tool already sitting on the statute book
None of this requires new primary legislation to make a start. Deferred Payment Agreements have existed since the Care Act 2014: where a care home resident's other assets fall below £23,250 and their home is counted in the means test, the local authority must offer to secure their care fees against the property instead of forcing an immediate sale, with the debt typically settled after death or when the property is eventually sold. Official estimates put the number of self-funded care home residents in England at around 137,000. Given how few families are aware deferred payment is even an option, it remains one of the more underused levers already available to local authorities, well before any broader funding settlement or insurance product enters the picture.
What would actually need to change
The industry's own read of its history is instructive: decades of attempts to innovate around this problem, from equity release tie-ins to bespoke annuities, have not produced a mass market anywhere, except in countries where the state first drew a clear boundary around its own liability. Three things would need to happen before a UK market could follow. First, government would need to state, and hold to, what it will pay for, whether that is a fixed floor, a cap on individual liability, or both; the current absence of any cap in England is itself a policy choice, not a gap waiting to be filled by the market. Second, insurers, regulators and pension providers would need to be brought into a genuine co-design process, in the way aviation and pharmaceutical regulators already work with the industries they oversee, rather than the more familiar pattern of letting a market develop and reviewing it retrospectively, which tends to chill investment rather than encourage it. Third, the natural moments already built into the system, the point someone starts drawing a state pension, or the new guided retirement touchpoint under the Pension Schemes Act 2026, would need to be used deliberately to raise the question of care funding, rather than left to a general national conversation that risks generating consensus for more support without generating any of the funding to pay for it.
What happens next
Until the Casey Commission's first-phase recommendations land in 2026, and until the state answers the question insurers have been waiting on for decades, what it will and will not pay for, there will be no genuine market to insure against the cost of getting old. The pressure to solve it is not going away. The fiscal backdrop is doing that on its own: the Office for Budget Responsibility's most recent long-term projection has public debt exceeding 270% of GDP by the mid-2070s on current policy, and UK public sector net debt already stood at close to £2.98 trillion in May 2026, a little over £42,000 for every person in the country. A funding settlement for social care will not resolve that arithmetic by itself. But without one, the arithmetic only gets harder.
This article reflects Bridgehead Communications' analysis of the wider policy debate around social care funding. It is general commentary, not financial or insurance advice.
