Rising premiums? How the new Act could impact insurance

Aged care providers could be staring down the barrel of rising insurance premiums as impending regulatory reforms linked to the new Aged Care Act place additional responsibilities on the shoulders of registered providers

While the new Act features a swathe of changes the sector must prepare for, insurance broker Lockton says organisations must closely monitor the concept of ‘associated providers’. This will redefine relationships between registered providers and entities that deliver services on their behalf.

As per the Act, “If an entity (an associated provider) engages in conduct under an arrangement with a registered provider relating to the registered provider’s delivery of funded aged care services, this Act applies in relation to the registered provider as if the registered provider had engaged in the conduct”. 

A third-party provider can be another registered provider or a contractor and their subcontractors. Services delivered by a third-party entity typically include cleaning, gardening, labour hire, transport or catering.

The Act explicitly states providers are responsible for any conduct by an associated provider, meaning it is up to the provider to ensure third parties comply with all aged care standards.

Lockton says the concept of associated providers will materially change the insurable profile of registered providers in several ways. 

1. Liability applies despite outsourcing to third-party suppliers or any contracts in place

Under the new Act, the scope of liability is broadened as registered providers will be held accountable for the actions of their associated providers, regardless of whether these entities are registered or unregistered. 

The registered provider is responsible for ensuring associated providers comply with all relevant obligations. Lockton notes there is no specific guidance as to whether the Aged Care Quality and Safety Commission (ACQSC) manages non-compliance for unregistered providers. 

2. Associated providers’ workers (and volunteers) are now all aged care workers under the new Act

All aged care workers and volunteers will be subject to the same obligations as registered providers’ direct employees. Providers must diligently ensure all workers meet the same obligations and that compliance is monitored. 

There will be additional layers of oversight and administrative responsibility regarding background checks and clearances. Failure to ensure compliance may lead to regulatory investigations, legal action and financial penalties.

3. Enhanced obligations and oversight

New obligations such as the Code of Conduct, Aged Care Quality Standards and Statement of Rights will significantly impact the risk profile of registered providers. Even the Commission’s heightened regulatory oversight will be a cause for concern. 

“The ACQSC now has expanded powers to monitor compliance, conduct audits, and impose penalties, which means registered providers should be especially vigilant in managing the risks associated with their associated providers as non-compliance could lead to regulatory investigations, legal action, and potential reputational damage,” Lockton explained.

How will the new Act influence insurance?

Lockton believes the new Act may significantly impact the following insurance policies:

• Directors & Officers/Management Liability: Responsible Persons may be considered in breach of governance if the registered provider fails to implement adequate systems to address the additional responsibilities imposed by the Act.
• Statutory Liability: With a potential increase in ACQSC investigations, coverage for regulatory investigation costs, including legal fees and other expenses, may become more critical.
• Professional Indemnity/Medical Malpractice: The scope of cover for the registered provider in delivering quality and compliant care may need to be extended to include associated providers, their staff, and their practices.
• Public & Products Liability: Registered providers’ scope of cover may need to be extended to include direct liability for associated providers and their staff, which previously could be contracted out.

Additionally, it says the new regulations create uncertainty regarding the responsibility for injuries to associated provider staff.

“If registered providers are ultimately responsible for the actions of associated providers, this may strengthen workers compensation recovery actions against registered providers’ public liability policies,” it explained. 

“This means that if an associated provider’s employee is injured, the registered provider could be held liable, leading to potential claims against their public liability insurance. Consequently, Public Liability insurances may need to be reviewed to ensure they cover potential recovery actions related to workers compensation claims.”

Elsewhere, the insurance broker anticipates that premiums will rise if registered providers seek extended coverage for associated providers. 

However, registered providers must clearly demonstrate that the associated providers’ systems, policies, procedures, and provision of workers meet the registered providers’ obligations under the Act to secure extended coverage.

Failure to do so could see some insurers decline to extend coverage, leaving the registered provider to self-insure this considerable exposure.

Another option is to name associated providers as insureds, although Lockton warns of several risks here. This includes granting the associated provider full access to the insurance policy, potentially leading to increased claims and usage, while there could be further growth in premiums and excesses. 

Lockton urges all organisations to proceed with caution and seek legal advice before naming third-party associated providers as insureds on a policy.

Organisations concerned about their insurance coverage levels can speak with their broker and legal counsel to determine the best steps forward.

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. You must obtain professional or specialist advice before taking any action regarding insurance, finances or contracts. The original article from Lockton can be found here.