The Association of British Insurers (ABI) and Department of Health have signed a ‘statement of intent' focusing on the future development of the long-term care market.
The bodies said the statement sets out the steps needed to help people understand their long-term care costs and plan to ensure adequate funding.
It said likely future products would build on and extend the existing market for care annuities.
Additional flexibility could also be added to existing products, it added. This includes the ability for a retirement annuity to provide more income when someone needs care, with "similar enhancements for income drawdown".
Equity release and protection products could also be given more flexibility in light of long-term care needs.
ABI director general Otto Thoresen said: "The insurance industry can play an important role in developing solutions to help people fund their long-term care needs. We have supported the introduction of a new care funding model, and believe the Care Bill provides a sustainable framework for both industry and consumers.
"The statement of intent sets out our commitment to working with the government to create the conditions for the development of an insurance market that offers a range of products to help people meet their long-term care needs."
Care and support minister Norman Lamb said the current care and support system "doesn't work and is hugely unfair".
He added: "People face losing almost everything they've worked hard for or being forced to sell their family home in a time of crisis to pay for the care they need.
"Our reforms will not only stop this from happening but will provide the industry with the certainty it needs to develop products that can help people plan for the future. I welcome this commitment from the industry and am excited to see how they take on the challenge of helping transform the way we pay for our care."
Standard Life head of customer income Alastair Black said long-term care was a huge issue for consumers.
"Many people entering care will only have two substantial assets to help finance this: their house and their pension," he said. "And due to the strong emotional attachments to their home, we consider that providing greater scope to access pension savings is a more attractive option for people.
"With minor, but important, adaptions to existing HMRC restrictions we believe flexible drawdown could help people to meet their costs of funding care.
"The introduction of a an impaired drawdown option, as offered to annuitants, and reducing the drawdown minimum income requirements could be the first steps in helping people fund their care costs.
"Funding long-term care costs is complex and involves making difficult decisions, therefore speaking with a financial adviser will help cut through the complexities and should result in people making the right decisions."
Aviva also backed the ABI.
Clive Bolton, Aviva's managing director of ‘at retirement' said: "This is a complex area and requires the industry to work in an integrated way across private and public sector care, so along with the Care Bill this statement of intent is a good step towards achieving that.
"At the core of getting this right for consumers is to understand the needs of those people who face difficult decisions about their long-term care. Supporting people at a time when they actually have to make a choice about their care, often when they are in their early 70s, is essential.
"It is at this specific point in a person's life, when they may be aware of medical conditions that will require care later on, that we can help them prepare for their later years.
"Industry and government need to work together to ensure the right conversations happen at a time when someone can make an informed decision with all the facts before them.
"It might start with a will, but will go on to encompass care products and services, and the funding to support this. It is far better to put arrangements in place in a considered manner, rather than as a distress purchase. And it is also important that tools are available to ensure people do not enter care plans that they and their family cannot afford."
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