A cautious approach: Aged Care Act risk and insurance implications
Last updated on 23 April 2025
The forthcoming Aged Care Act introduces monumental regulatory changes that will impact aged care providers across Australia.
These changes are likely to create additional financial and compliance pressures for providers, enhancing the difficulty of the journey that lies ahead.
Lockton Manager – Industry Strategy & Innovation, Lyle Steffensen, recently highlighted some of the key concerns and critical questions linked to Directors’ personal liability risks, the financial viability of aged care organisations, and the adequacy of Directors’ & Officers’ (D&O) insurance coverage. All of these issues will be incredibly relevant to Responsible Persons.
Elsewhere, she said liability policies and property coverage may be impacted by funding changes, requiring providers to reassess their risk transfer strategies.
Key risks and insurance implications
1. Financial viability and directors’ & officers’ (D&O) insurance
The increased regulatory costs and compliance burdens may affect the financial viability of aged care organisations. In cases of financial distress, D&O insurers often impose insolvency exclusions, potentially leaving directors and officers without coverage for claims arising from financial collapse.
This underscores the importance of robust financial planning and careful review of D&O policies to understand any exclusions that could expose directors to personal risk .
2. Impact on liability and property insurance
Funding and income are key factors influencing premium costs and coverage terms for various insurance policies. Insurers assess an organisation’s revenue streams and financial stability when underwriting policies such as:
- Directors’ & Officers’ (D&O) insurance: Responsible Persons of aged care providers may be seen as higher risk, leading to increased premiums and restricted cover.
- Professional indemnity and public liability insurance: A reduction in funding could impact the ability to maintain compliant services, affecting the level of coverage insurers are willing to offer. Conversely, funding changes that lead to service expansion require careful risk assessment at the board level.
- Industrial Special Risks (ISR) insurance: Business Interruption cover, designed to protect against revenue or gross profit loss, could be affected by changes in funding models. It’s essential to reassess the methodology of Business Interruption cover within the Act’s regulations, particularly concerning the return of Refundable Accommodation Deposits (RADs) to residents and interest income lost due to damaged property .
3. Necessity of statutory liability coverage
With increased regulatory scrutiny under the new aged care framework, providers face heightened risks of fines and penalties. Statutory Liability insurance, which covers legal costs and certain fines and penalties arising from regulatory breaches, becomes increasingly important.
Providers must review their statutory liability coverage to ensure policies can respond to regulatory investigations, especially as the ACQSC enhances enforcement actions under the cost recovery model.
4. Risks associated with new funding streams
The government’s push for new funding streams, such as home care, offers opportunities for aged care providers to diversify revenue. However, these new services introduce unique risks that may not be covered under existing insurance programs.
Key concerns include expanded liability exposure, particularly when providing care in private homes, which presents different challenges compared to residential aged care settings .
Strategic recommendations for aged care executives
- Engage early with insurers: Proactively discuss potential changes with insurance providers to negotiate terms that offer optimal coverage.
- Comprehensive policy review: Assess all existing insurance policies to identify and address potential gaps in coverage, especially in light of new regulatory requirements.
- Financial planning: Implement robust financial strategies to mitigate risks associated with increased regulatory costs and potential funding fluctuations.
- Risk management for new services: Conduct thorough risk assessments when expanding into new service areas, ensuring that appropriate insurance coverage is in place to address unique challenges.
The contents of this article are general in nature and are not intended to be interpreted as advice on which you should rely and may not necessarily be suitable for you. Obtain professional or specialist advice before taking any action.
For a more detailed analysis of the risk and insurance implications under the new Aged Care Act, refer to Lockton’s comprehensive article.