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Aged care insurance market update Q3 2022

Aged care providers continue to experience rising insurance costs. Find out where there may be some reprieve, and key risk and insurance considerations.

State of insurance market for aged, disability and home care providers as at Q3 2022

Marsh’s Global Insurance Market Index has been issued for Q2 2022 (refer to “Pacific” for insurance index specific to Australia and New Zealand).

Overall, the Pacific region continues to see easing of increases for property, financial and professional lines. However, care providers are experiencing effects counter to the market as a result of Royal Commissions affecting community services provided (Aged Care, Disability, Institutional Response to Child Sexual Abuse), COVID-19 and continuing extreme weather.

Property insurance

Local extreme weather continues to top the agenda in Australia. In February 2022, Australia’s East Coast experienced severe storms, heavy rainfall and flash flooding. At 8 September 2022, according to the Insurance Council of Australia (ICA), the 2022 floods along Australia’s East Coast have cost more than $5bn in insurance damages. The direct costs from extreme weather events are estimated to grow by more than 5% and reach more than $25bn by 2050.

The property insurance market continues to focus its attention on ‘tier 2’ catastrophe claims such as storm, flood, hail and bushfires, and is imposing increased deductibles and reduced limits of cover for insured locations within prone areas. Insurers are turning their focus to flood zone mapping, either reducing limits or excluding cover altogether for locations within zones with more than 1:100 year flood probability and/or increasing deductibles to $100,000 per claim or more.

Rise in construction costs

Insurers are very concerned as to the maximum limit of cover they will apply across a property portfolio, as they are now required to seek reinsurance to support large limits of liability. A shortage of labour, increased fuel prices as a result of the Russian-Ukraine war and COVID-19 border closures, as well as the rising distribution charges for construction materials continues to increase construction costs. 

In the last two years, care providers have suffered a large increase in claims for secondary catastrophe perils, particularly in residential areas prone to flood, hail and storm. As a result, challenges remain for clients with poor loss history and locations in catastrophe zones, with flooding of particular concern.

Contrary to the general Pacific increase of 5% for property, our recent experience indicates that increases between 10-20% on premium rates can be expected (depending on loss history), along with increased deductibles and reduced limits for secondary catastrophe perils.

Liability and FINPRO insurances

Generally, the Pacific region’s casualty (liability) premiums rose 11% in Q2 2022, and financial and professional lines pricing rose 6%, down from 10% last quarter.

There is still pressure on care providers’ Directors & Officers/Management Liability due to the ongoing focus on governance as a result of the changing legislation being introduced following the conclusion of last year’s Aged Care Royal Commission, the ongoing Disability Royal Commission and continued requirements for strict management of COVID-19 outbreaks, particularly for vulnerable people in care. 

Care providers are facing steep increases for Liability and Medical Malpractice. There is still very limited cover available for sexual abuse, however, limits available are between $1m-$5m, with retroactive cover being stringently reduced or removed entirely. Insurers want to see rigorous risk management for safeguarding and governance, and are interviewing care clients to determine whether they will provide this cover. Deductibles being offered are at levels of $50,000 per claim and above. Insurers continue to decline to provide any cover (particularly liability for sexual abuse cover) for children in out-of-home care, group homes or foster care.

Communicable Diseases Cover Exclusions vary across insurers, with the minimum exclusion applied being that for any business interruption or liability exposure for diseases listed under the Biosecurity Act (at this stage the key disease is COVID-19). Marsh continues to ensure we seek cover for diseases such as flu, or legionella as these are still high risk factors for care providers.

Increased deductibles (minimum $150,000 up to $250,000) are being imposed for Contractors and Labour Hire claims. Insurers are seeing a rise in recovery claims being made by Workers Compensation insurers of injured contracted staff. Care providers are now using much higher numbers of casual or contracted workers particularly during COVID-19, due to the pressure of having to enact minimum staff to customer ratios, and/or staff having to take sick leave due to COVID-19, stress or physical injury.

In the last year regarding premium patterns, we have seen insurers apply significant increases of between 80%-400% for liability and medical malpractice premiums, along with severe restrictions in cover and capacity for molestation. There is a levelling out of Directors & Officers premiums, and competition among insurers, particularly for excess layers, which continues to improve pricing. Directors & Officers pricing for care clients is increasing between 10%-25% depending on claims and assuming revenue remains constant.

Cyber insurance

In the Global Insurance Market Index for Q2 2022, cyber insurance is noted as the largest exposure for insurers, with a sharp increase in premiums, deductibles and a strong requirement for very well managed cyber protection by all insureds. Significant increases in premiums and deductibles along with severe restrictions of cover are being applied by cyber insurers.

Since the COVID-19 pandemic began, various care providers globally have been targeted in a variety of complex and coordinated cyber-attacks. A growing number of cyber-criminals are seeking to capitalise on the vulnerabilities of the sector during this period. This includes a desire to steal intellectual property such as data relating to COVID-19 vaccine development, modelling and experimental therapeutics.

In October 2022, healthcare provider Medibank is the latest high-profile company to be hit by a cyber-attack. Medibank has admitted that the personal data of some of its customers has been stolen during the attack, including Medicare information, policy numbers and some claims data. This follows the breach on telco Optus, where hackers claimed to access data of 9.8m current and former customers, including passports, drivers license and Medicare details.

Health-related data is seen as the most valuable data in the world. For care providers, predatory access to customer financial and health information can be catastrophic for both the provider, customers and their families.

Key actions and focus areas for care providers in the current insurance market

Key risk and insurance considerations for care providers are:

  • While Marsh will continue to seek options to reduce premiums by exploring levers such as increasing deductibles or reducing limits of cover, it is important to note that in the current market, only substantial deductibles ($100,000 or more) will make a significant impact on premium increases. Care providers must be clear on the extent of their risk appetite for increased deductibles.
  • The provider must be able to demonstrate that there is a consistent focus and investment in improving risk management across their entire organisation with a focus on safeguarding, prevention of neglect, clinical risk governance, and cyber. These need to be standing agenda items for governance committees and up to board level.
  • Providers must be able to show evidence that all labour hire staff and contracted staff have the same induction, safety management and support to prevent physical and mental injury – which might result in a workplace claim – as their employees do.
  • It is important to ensure that replacement valuations of buildings take into account rising materials and labour costs.
  • Regular and comprehensive property risk surveys must be undertaken preferably across all locations that are valued at $1m or more.

Marsh is able to assist with detailed support programs across these action plans as necessary.

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