Despite claims by Stephen Dorrell, the Health Minister, that controls would "inhibit innovation and the development of new products", insurers said yesterday they wanted long-term care to be brought under the Financial Services Act.
The Association of British Insurers, which had previously opposed tougher regulation, is due to issue its own proposals this week.
A spokesman said yesterday: "We have decided that the sale of such products should be controlled under the FSA."
David Robinson, head of sales and marketing at Scottish Provident, said: "We believe strongly that the public must be reassured that legislation governing any form of partnership arrangement [between the Government and insurers] has been thought out thoroughly before it is introduced." He added that selling of such plans should be regulated by the Personal Investment Authority, the financial watchdog.
Legal & General and Prudential, two of Britain's leading insurers, also said they were in favour of effective regulation of the market.
Research by Munich Re, a leading insurer, said last month that the market for long-term care products could be worth up to pounds 10bn a year. Sales of home-income plans, where homeowners surrender part of the equity in their home in return for a guaranteed income in old age, could be worth up to pounds 100bn, some estimates suggest.
The insurers' initiative in calling for tough regulation is aimed at preventing a repeat of the pensions scandal, in which 1.5 million people were wrongly advised to buy a personal pension.
The proposal to boost the merits of private cover follows increasing anger among many elderly people and their children that they are being forced to sell off their only assets to fund the costs of care.
Last month, Mr Dorrell issued a consultation paper, in which the Department of Health proposes that for each pounds 1-worth of cover bought by a policyholder, local authorities will disregard pounds 1.50 of assets when means-testing elderly people for long-term care.
When added to the pounds 10,000 in assets disregarded by the authority when means-testing individuals, a one-off premium of pounds 7,000 might allow a person to protect a house worth pounds 60,000 from having to be sold before the council has to help out.
However, the Government said last month that it felt there was little need to regulate the new industry because this was likely to stifle innovation and competition.
Consumer groups have argued that without controls on how they are sold, long-term care policies could be targeted at vulnerable people, who may be frightened into taking out the wrong plan.Reuse content