Article

Preparing for change: Insurance and risk implications of the new Aged Care Act

Understand the insurance and risk implications of the Aged Care Act 2024 and how providers can prepare for the upcoming changes in Australia’s aged care sector.

Updated 1 November 2025 (Originally published 4 July 2025)

In response to the urgent need for reform in Australia’s aged care sector, the Aged Care Act 2024 (“the Act”), is set to reshape the landscape of care services for older Australians. Originating from the findings of the Royal Commission into Aged Care Quality and Safety, this landmark legislation aims to address the systemic issues within the sector and represents a significant overhaul of the regulatory framework governing aged care services in Australia. With a focus on introducing a rights-based approach, stronger regulatory oversight, and new funding models, the Act represents a significant shift in how aged care services are regulated and delivered, while also bringing forth a myriad of insurance and risk implications for aged care providers.

Originally set to take effect on 1 July 2025, the Act was delayed and came into effect on 1 November 2025 to allow providers more time to prepare. This article explores the insurance and risk implications, emphasising the need for robust risk management and insurance strategies in light of the forthcoming changes.

Unpacking the key changes in the Aged Care Act 2024

Aiming to improve the quality of care for older Australians, the Aged Care Act 2024 establishes clear rights for consumers, increases provider accountability, and implements new quality standards. Aged care providers must comply with enhanced regulatory requirements, which include maintaining qualified staff and adhering to new service delivery standards. The Act also imposes new obligations on "responsible persons" within aged care organisations, requiring them to exercise due diligence to ensure compliance with these duties. As a result, providers are expected to face increased operational and compliance burdens on providers, necessitating a thorough re-evaluation of their risk management and insurance strategies.

For a more detailed breakdown of key changes under the Act, jump to the FAQ section below.

Addressing increased financial and compliance pressures

The new Act introduces heightened financial and compliance pressures for aged care providers. With a more stringent regulatory framework, providers will need to invest significantly in compliance audits, staff training, and operational improvements. This increased scrutiny can lead to greater exposure to liability claims, particularly concerning directors' personal liability. Therefore, aged care providers must reassess their directors and officers liability insurance (D&O) coverage to ensure it adequately protects against potential claims that could arise from governance failures or non-compliance with the new standards.

Understanding new compensation pathways

Establishing new compensation pathways for individuals harmed due to breaches of duty by aged care providers is another critical aspect of this legislation. This significant development establishes a clearer route for residents and their families to seek redress for grievances related to care quality and safety. The introduction of civil penalties, alongside these compensation pathways, underscores the importance of compliance and risk management for providers. Aged care organisations must prepare for the potential financial implications of these pathways, as they may face increased claims and associated costs.

Enhanced insurance requirements

A comprehensive review of existing insurance policies is necessary for aged care providers. Focus should be place on several key areas:

Directors and officers insurance - With increased accountability for directors and executives, robust D&O insurance is paramount. This coverage can help protect against claims related to breaches of duty, mismanagement, or failure to comply with regulatory requirements.
Statutory liability insurance - New statutory obligations increase the risk of regulatory breaches. Statutory liability insurance can be essential for covering the costs associated with defending against claims of non-compliance.
Aged care professional indemnity insurance - As service delivery standards improve, the risk of professional negligence claims may rise. Professional indemnity insurance can be crucial in safeguarding against claims related to the quality of care provided.
Public liability insurance - With increased consumer rights and expectations, aged care providers must ensure they have adequate public liability coverage to help protect against claims arising from incidents on their premises.
Workers’ compensation - The evolving regulatory environment may impact workers’ compensation claims, especially as providers implement new staffing models and training programs. A review of workers’ compensation policies is essential to ensure alignment with these changes.

Learn more about the Act’s insurance implications:

The new Act imposes increased responsibilities and duties on the directors and officers of registered providers. Does D&O insurance cater for this broader scope and exposure?

Most D&O insurance policies include:

a broad definition of “claim” which includes criminal prosecutions and civil demands and proceedings;
broad investigation costs cover;
a broad definition of “loss”, often referring to any amount which an insured person is legally liable to pay;
cover for insurable fines and penalties (refer to comment on the insurability of fines and penalties under statutory liability coverage); and
a broad definition of “wrongful act”, often referring to any actual, alleged or proposed act, error or omission, breach of duty, breach of trust, misstatement, misleading statement or breach of warranty of authority by an insured person.

It’s important to understand that cover is generally only provided where the insured person is acting in a managerial capacity or where the claim arises from such person serving in such capacity.

The Act imposes significant penalties on registered providers including for failure to:

ensure that its conduct does not cause adverse effects to the health and safety of a care recipient; and
comply with an individual’s duty of due diligence to ensure compliance, which results in “serious failure” to comply with that duty.

These penalties can be imposed on registered providers and their board members, the executive officers, the persons who have responsibility for overall management of nursing services and responsible persons.

Statutory liability insurance is designed to pay insurable fines and penalties imposed as a result of a breach of legislation. In most cases, it will also pay defence costs. In some cases, the payment of defence costs requires that there is reasonable grounds or prospect of defence.

Statutory liability insurance has been under the spotlight in the aged care sector because most medical malpractice and professional indemnity insurance policies do not cover fines and penalties and exclude bodily injury.

In addition, D&O policies usually only cover the insurable fines and penalties of the individuals who manage the company. The policy responds only where the fine or penalty is imposed as a result of an act, error or omission whilst such individual is acting in a managerial capacity or is imposed by reason of the person serving in such capacity.

Stronger legal obligations for providers and compensation for individuals

The Act includes a new statutory duty to, as far as reasonably practicable, ensure that a registered provider’s conduct does not cause adverse effects to the health and safety of the care recipient. It allows individuals to seek compensation from a registered provider who breaches this statutory duty.

Many medical malpractice insurance policies are typically broad enough to cover such claims for compensation.

In addition, traditional professional indemnity polices are also likely to exclude liability arising from any bodily injury, mental injury, mental anguish, shock, sickness, disease or death.

“Associated provider” exposures

The new Act now holds the registered provider responsible for the actions of the “associated provider” as if the registered provider had engaged in the associated provider’s conduct.

As per s11(6) of the Act, an associated provider is an entity which engages in conduct under an arrangement with a registered provider relating to the registered provider's delivery of funded aged care services.

Most of the Australian medical malpractice insurance policies provide cover for vicarious liability arising from the actions of contractors providing insured services. At the time of legislation, at least one insurer has amended its medical malpractice policy wording to make specific reference to “associated providers.”

Other medical malpractice insurers are also expected to align their policy wordings with the Act.

Fines and penalties

Most medical malpractice insurance and professional indemnity insurance do not cover fines and penalties.

General liability insurance policies typically include cover for compensation in respect of bodily injury. Cover is also provided for defence costs and investigation costs. However, they generally do not cover fines and penalties and professional liability.

Some strategic recommendations for aged care providers

Aged care providers should consider the following strategic recommendations to help effectively manage the complexities introduced by the new legislation:

Engage with insurers early: Initiate discussions with your insurance broker and underwriters to understand the implications of the new Act on your coverage needs. Early engagement can help you identify potential gaps in coverage and facilitate timely adjustments.
Conduct comprehensive policy reviews: Review your existing insurance policies thoroughly to ensure alignment with the new regulatory requirements. Assess your coverage limits, exclusions, and overall adequacy in light of the increased risks.
Implement robust financial planning: Develop comprehensive financial plans that account for the additional costs associated with compliance, training, and potential insurance premiums.
Invest in risk management practices: Establish a proactive risk management framework will be critical in mitigating potential liabilities. This includes regular compliance audits, staff training programs, and the development of incident response plans.
Consult with risk and insurance specialists: Engage with experts in risk management and insurance who can provide valuable insights and help tailor insurance strategies to address the unique challenges posed by the new legislation.

Preparing for a new era in aged care

The Aged Care Act 2024 heralds a transformative moment for aged care providers in Australia, characterised by increased regulatory scrutiny and heightened accountability. As the sector adapts to these changes, it is essential for providers to reassess their insurance coverage and risk management strategies. By proactively addressing the implications of the new legislation, aged care providers can better safeguard themselves against potential liabilities and ensure they continue to deliver high-quality care to older Australians. As the landscape of aged care evolves a commitment to compliance and quality improvement will be vital for success.

Learn more

We encourage you to stay informed and prepared as these significant reforms take shape. Marsh is well-equipped to assist organisations in adapting insurance programs to the evolving regulatory landscape. With our expertise in risk management and insurance solutions – backed by healthcare, placement and technical specialists – we can help your organisation thrive by developing robust strategies to mitigate potential liabilities and enhance compliance. If you have questions about the new legislation and how it may impact your business, please contact one of our specialists.

FAQs

The new Act commences on 1 November 2025. It introduces the reformed national framework, which replaces the previous Aged Care Act 1997 and applies to the aged care system nationally in Australia. The Act applies to everyone involved in the aged care system, including those who access or deliver services, e.g. people receiving care, their families and carers, aged care providers, aged care workers and government agencies.¹

Key changes under the Act include:

New registration requirements
A new Statement of Rights
A new Statement of Principles
Stronger legal obligations: Registered providers will be subject to an explicit statutory duty to take all reasonable steps to avoid adverse effects on care recipients’ health and safety. Where a provider’s conduct amounts to a “serious failure” to meet this duty, criminal offences and significant corporate penalties may apply. Additionally, there are also a number of civil penalty provisions.
Compensation for individuals: The new Act creates clearer pathways for individuals to seek compensation from providers when statutory duties are breached.
Executive liability: “Responsible persons” under the Act will include board members, senior executives and those accountable for nursing services, and have express due diligence obligations. Individuals can be personally liable and commit offences if their conduct amounts to a “serious failure” to comply with the duty to oversee and ensure compliance. Significant penalties may apply for these offences. Additionally, civil penalty provisions can also come into play.
Further key registration conditions: Providers must meet strengthened registration conditions under the new model including the Aged Care Code of Conduct, the Financial and Prudential Standards, enhanced governance requirements and robust complaints and incident management systems.²

The new Act strengthens duties for “responsible persons” and increases the regulatory tools that can lead to personal exposure for boards and senior managers, so potential director liability is materially higher. Providers should review D&O limits, defence costs, run‑off and policy scope now, and engage their broker to model scenarios and update cover in line with the provider’s risk strategy, noting that waiting till insurance renewal may leave a protection gap.

D&O, statutory liability, professional indemnity, public liability and cyber are the insurance covers aged care providers should focus on and potentially increase cover for, as insurers are likely to review pricing or tighten terms given the higher regulatory risk. Providers who work with their brokers to develop strong underwriting submissions and seek direct access to insurers to articulate their robust risk and governance frameworks can limit potential premium increases as insurers adapt their underwriting models to the new exposure environment. Conducting a gap analysis and engaging early with your broker and insurers are critical during this time of change and transition, combined with having a sound understanding of the insurance market and recent trends. (Read Marsh’s Australian Healthcare Insurance Market Update 2025).

Potentially, yes. The Act creates new compensation pathways and statutory penalties which will increase the likelihood and potential size of claims and penalties against providers. Providers should update incident response and complaint processes, review their PI and statutory liability covers, and ensure internal escalation and insurer notification procedures are aligned to facilitate early intervention.

Compiling evidence packs, governance records, training logs and remediation plans, and running internal mock audits to identify gaps can help aged care providers prepare for the more frequent and deeper inspections expected to come their way. Additionally, establishing a clear remediation timetable, assigning owners and ensuring insurer notification processes are tested can help ensure readiness ahead of any regulatory engagement.

The Support at Home program and direct place allocation changes will alter referral pathways, intake processes and some revenue streams for providers. Providers will need to coordinate with My Aged Care and referrers, map customer journeys and reprice services where necessary to reflect new funding and referral flows. It is important for providers to understand their operational and financial risks in light of these changes.

The new framework and strengthened standards increase expectations for a skilled, stable workforce (combined with already implemented award wage changes). Providers should plan for higher labour costs, review rostering and training, implement strategies for recruitment, retention and skills development, and review workers’ compensation policies to ensure alignment with any workforce changes. Contact your Marsh representative if you’d like to learn more or need help.

References:

¹ www.health.gov.au/our-work/aged-care-act/about#who-will-be-affected

² lawcompliance.com.au/new-federal-aged-care-legislation/

old woman patient communicates with the doctor stethoscope. High quality photo

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This publication is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. Marsh shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Any statements concerning actuarial, tax, accounting, or legal matters are based solely on our experience as insurance brokers and risk consultants and are not to be relied upon as actuarial, accounting, tax, or legal advice, for which you should consult your own professional advisors. Any modelling, analytics, or projections are subject to inherent uncertainty, and any analysis could be materially affected if any underlying assumptions, conditions, information, or factors are inaccurate or incomplete or should change.

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Preparing for change: Insurance and risk implications of the new Aged Care Act

Unpacking the key changes in the Aged Care Act 2024