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.

In response to the urgent need for reform in Australia’s aged care sector, the Aged Care Act 2024, 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 has been delayed to 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.

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’ (D&O) insurance 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 coverage - 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.
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.

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, 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.

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