In February this year, the Royal Commission into Aged Care Quality and Safety delivered its 2,000-page final report — and the sweeping changes it recommended sent a strong signal to all those involved in the aged-care sector, including insurers.

Increased premiums and exclusions in new policies are two of the biggest impacts for insurers, according to Chris Spain, partner and health law specialist at Wotton + Kearney. 

‘There has been a contraction in the market for aged-care providers and fewer insurers are offering terms to aged-care providers to cover them,’ says Spain. 

‘There have been premium increases and any aged-care provider looking to change insurer may find they’ve got an exclusion in their policy for any matter arising out of the royal commission.’ 

The royal commission’s final report contained 148 recommendations for a complete overhaul of the sector, including improvements to the workforce, greater and stronger independent oversight and a focus on the human rights of the elderly. The royal commission also recommended a new Aged Care Act focusing on residents and their rights and needs, expected to be introduced in 2023.

Spain says the final report requires aged-care providers to review and adjust many work practices, including a huge increase in compliance requirements and required documentation, as well as more compliance audits.

For example, insurers will expect providers to meet and document the benchmarked minimum care minutes — increased to 200 minutes per resident per day and including 40 minutes of time with a registered nurse from 2022 and enforced from 2023. 

Litigation risks set to rise

In response, the federal government has accepted 126 of the recommendations, with a further 12 still being considered, and has outlined a number of initiatives that will be introduced through a five-year plan. 

Once the measures are implemented, aged-care providers are going to have benchmarks that they have to meet, says Spain. If they don’t meet those benchmarks, they are going to be exposed to a litigation risk.

He says significant restrictions on the use of restraints and new rules on the prescription of sedatives and anti-psychotic medications for aged-care residents will create ‘a pretty significant compliance consideration’. Breaches may lead to claims.

Marsh’s Pacific Care Solutions practice leader Lyle Steffensen agrees, warning that the risk of large-scale liability claims against providers is increasing. She says two class actions have been filed in Australia and one investigation against aged-care providers has begun. 

Steffensen predicts an increased risk of class actions against providers due to the findings of the royal commission, negative media coverage, societal expectations, increased litigation funding, vulnerability of older people to COVID-19 and the limitations on family members to see their loved ones in aged care. 

She says the main policy that could respond to a class action against an aged-care provider is general (public) liability cover for the provider’s or its employees’ liability at common law for causing or contributing to injury to third parties. But there could also be claims on the medical malpractice / professional indemnity policy and on the directors and officers (D&O) liability policy.

Steffensen says the rising risk for boards and executives of aged-care providers ‘requires meticulous attention’. Attracting directors to these boards, particularly as D&O insurance premiums increase, is key as aged-care providers meet higher legislative and financial hurdles to remain viable. 

‘Many directors will not participate on a board without adequate insurance or watertight deeds of indemnity,’ she says. ‘Maintaining D&O insurance is a critical risk management tool. Some insurers are declining to quote, while others are exiting the market altogether.’

Major changes on the way

Spain says that as the population ages in Australia and New Zealand, the implications of the royal commission on the sector will become an increasing priority.

‘We are going to have triple the number of Australians over 85 by 2060, and we’re going to go from having four working-age Australians for every person over 65 to only three working-age Australians for that same bracket,’ he says.

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