As Australia prepares for the rollout of its reformed Aged Care Act on July 1, Lockton has released a guide outlining the regulatory changes’ implications for insurance and risk management within the aged care sector.
The upcoming framework, driven by a cost recovery model, is expected to introduce broader financial and compliance responsibilities for providers.
The Aged Care Quality and Safety Commission (ACQSC) has signalled its intention to increase regulatory fees to fully fund its oversight activities. Alongside a shift to a new provider registration model, the changes are prompting aged care operators to reassess their liability and property insurance strategies.
Lockton’s guidance pointed to heightened scrutiny on the role of responsible persons – typically board directors and executives – whose personal liability exposure could increase amid financial pressures.
Directors’ and officers’ (D&O) policies, particularly those with insolvency exclusions, may not provide cover if the provider encounters financial difficulties or collapses.
“Aged care boards must ensure robust financial planning and review their D&O policies carefully to understand any exclusions that could expose directors to personal risk,” Lockton said, emphasising the importance of engaging with insurers and brokers early.
Insurers consider funding levels and income as core elements in determining liability insurance premiums and conditions. As funding models change, insurance costs for D&O, professional indemnity, and public liability coverage may rise.
Lockton noted that if service quality is perceived to decline due to budget constraints, insurers may narrow coverage or raise premiums. Conversely, funding increases that support service expansion bring additional operational risks that must be considered at the governance level.
The report also highlighted the implications for industrial special risks (ISR) coverage. Providers may need to revisit how business interruption policies account for variations in income, including interest from refundable accommodation deposits or other aged care revenues impacted by regulatory changes.
Providers planning to expand into home care services – an area being promoted by government funding shifts – must examine whether existing policies cover operations outside residential facilities. Home-based care introduces specific risks, such as limited oversight of care delivery and greater workplace health and safety challenges, particularly for lone workers.
The organisation also urged a review of statutory liability insurance, given expectations that the ACQSC will increase enforcement efforts. Without sufficient cover, providers could face out-of-pocket penalties or legal expenses from regulatory actions.
Lockton recommended that aged care organisations undertake several key steps, including reassessing D&O and statutory liability insurance, evaluating how funding changes affect coverage across policies, and ensuring governance structures can manage risks introduced by new service models.
In parallel, the strata management sector is facing its own challenges tied to insurance remuneration. The NSW government is currently considering changes to how strata managers are remunerated for arranging insurance policies.
PICA Group CEO Bobby Lehane has raised concerns about proposed reforms in New South Wales that could disrupt commission structures for strata managers, which he warned could destabilise the sector financially.
“The aged care sector saw sustained profitability decline, which led to an exodus of skilled professionals and investors. This resulted in deteriorating services to clients and eventual government intervention,” he said.
A recent survey by PICA Group, covering property owners in NSW, Victoria, and Queensland, showed varied opinions: 34% support the current commission model, 38% prefer a fixed fee paid by insurers, and 29% are open to ending commissions if it leads to increased management fees.
Lehane said the data reflected broad concerns about rising costs for property owners.
“The strata management sector has endured a sustained period of declining profitability and viability, so any significant changes to remuneration from insurance at this time represents an existential threat,” he said.
