The Australian Government passed the Aged Care Bill 2024 on 25 November 2024, and the new Aged Care Act 2024 ("the Act") will commence from 1 July 2025.
The Act introduces numerous significant changes that are expected to have substantial risk and insurance impacts for aged care service providers.
For aged care service providers, preparing for the new Act will require careful planning and adjustment to mitigate potential risks and ensure a smooth transition.
In this article, we will explore the potential risk and insurance implications related to key insurance classes that aged care service providers need to consider as they prepare for the Act to come into effect.
1. Directors & Officers/Management Liability
The Act imposes stricter governance requirements on registered providers and responsible persons in governance roles.
The introduction of the concept of associated providers also has the potential to extend these enhanced governance requirements beyond their own operations to include the activities of associated providers, thereby increasing the complexity and scope of responsibilities and heightening the risk of governance breaches.
The Act emphasises the duty of responsible persons to exercise due diligence, which means that directors and officers must continually assess and improve their governance processes to prevent breaches.
This ongoing requirement for continuous improvement necessitates regular reviews and updates to compliance systems, which can be resource-intensive and challenging to sustain.
Given the increased governance risks, Directors & Officers (D&O) insurance policies may need to be reviewed and potentially expanded to cover new liabilities.
Directors and officers should ensure their insurance policies provide adequate protection against the heightened risks of governance breaches, including coverage for legal fees, regulatory investigation costs, and potential civil penalties.
The scope of D&O insurance may also need to be broadened to include liabilities arising from the actions of associated providers, as registered providers are now responsible for their compliance as well.
2. Statutory Liability
The Act introduces several statutory liability risks, primarily due to the increased likelihood of regulatory investigations by bodies such as the Aged Care Quality and Safety Commission (ACQSC).
These investigations can lead to significant legal fees for registered providers, including costs for legal representation, documentation preparation, and participation in hearings or inquiries.
While severe criminal penalties have been removed, civil penalties remain a significant risk, with substantial fines and potential compensation claims from affected parties further increasing potential financial liabilities.
The new regulations also introduce enhanced oversight and compliance requirements, raising the risk of non-compliance.
Given these increased risks, it is essential for registered providers to review their statutory liability insurance policies to ensure comprehensive coverage for all potential costs associated with regulatory investigations, civil penalties, and compensation claims.
Providers should also consider extending their coverage to include associated providers, as they are now responsible for ensuring their compliance as well.
3. Professional Indemnity/Medical Malpractice
The introduction of associated providers significantly increases the risk of vicarious liability for registered providers, meaning they can be held responsible for the actions or omissions of their associated providers, including any professional negligence or malpractice that occurs within the scope of their services.
Given the potential for increased vicarious liability, the scope of Professional Indemnity insurance for registered providers may need to be expanded to include vicarious coverage for the actions of associated providers, their staff, and their practices.
4. Public Liability
The new regulations introduce the concept of Associated Providers, significantly impacting Public Liability.
Registered providers are now responsible for ensuring their associated providers comply with the Act, making them directly liable for any breaches or incidents involving these providers.
This change means that Public Liability insurance may need to be broadened to cover direct liability for the actions of associated providers and their staff, including incidents like injuries to clients or property damage.
Breaches of the new regulations can lead to investigations, fines, or restrictions on operations, directly affecting the registered provider's registration and service delivery.
Public Liability insurance should cover the costs associated with these investigations, including legal fees and any fines or penalties.
5. Workers Compensation Recovery Actions
The new regulations create uncertainty regarding the responsibility for injuries to employees of associated providers.
If registered providers are ultimately responsible for the actions of associated providers, this may strengthen workers compensation recovery actions against registered providers’ public liability policies.
Public Liability insurances may need to be reviewed to ensure the policy covers potential recovery actions related to workers compensation claims.
Cautionary note: including third-party 'associated providers' as insureds
When considering Public Liability and Professional Indemnity/Medical Malpractice policies, naming associated providers as insureds can introduce several risks for the registered provider, including:
Policy Access: By naming associated providers as insureds, they gain full access to the registered provider’s insurance policy. This means they can utilise the policy as if it were their own, potentially leading to increased claims and usage that the registered provider might not have anticipated.
Subrogation Rights: The insurer’s rights of subrogation are removed when associated providers are named as insureds. Subrogation allows an insurer to pursue a third party that caused an insurance loss to the insured. Without this right, the insurer cannot seek recovery from the associated provider if they are at fault, which could lead to higher costs for the registered provider.
Increased Premiums and Excesses: Adding associated providers, especially those whose risk management practices may not meet the standards of the registered provider, can lead to increased premiums and potentially higher excesses imposed by the insurer. This is because the overall risk profile of the policy increases, making it more expensive to insure.
Policy Ambiguity: Without clear legal guidance, it can be unclear how the policy will respond to the associated providers’ activities outside of their contract with the registered provider. This ambiguity can impact the loss ratio on the policy, complicate efficient claims handling, and create challenges in policy administration. It is essential to clarify these aspects to avoid potential disputes and ensure smooth operation of the policy.
Given the above potential exposures, it is advisable to proceed with caution and seek legal advice before naming third-party associated providers as insureds on your policy.
Navigating the governance risks of the New Aged Care Act
In summary, the Act could potentially lead to significant governance risks that require careful management to avoid financial and operational repercussions.
During this period of change, it is crucial to partner with a risk and insurance specialist with a deep understanding and extensive experience in the aged care sector, as their expertise can help you navigate the complexities of the new Aged Care Act and manage risks effectively.
If you need assistance navigating the risk and insurance implications of the Act, please don't hesitate to get in touch.
The contents of this publication are provided for general information only. Lockton arranges the insurance and is not the insurer. While the content contributors have taken reasonable care in compiling the information presented, we do not warrant that the information is correct. The contents of this publication are not intended as a legal commentary or advice and should not be relied on in that way. It is not intended to be interpreted as advice on which you should rely and may not necessarily be suitable for you. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication.
