Protecting care homes during the pandemic

Residential aged care providers are experiencing difficulty in obtaining suitable insurance coverage since the COVID-19 virus outbreak, particularly due to the higher vulnerability of residents and the difficulty to protect them.

The aged care sector is in the spotlight for many reasons. As many as half the people killed by COVID-19 in Europe were residents in long-term care facilities, according  (opens a new window)to the World Health Organization. 

Measures to protect care homes 

Governments around the globe are aware of the heightened risk for residential aged care home facilities. In England, for example, care homes will receive (opens a new window) extra funding of £546m to try to reduce transmission of coronavirus during the winter. The money helps to pay workers full wages when they are self-isolating, and ensures carers only work in one care home, reducing the spread of the virus. The fund was set up in May and has been extended until March 2021.

In Australia, the federal government committed an additional (opens a new window) AUD 563.3 million to extend support for the aged care sector’s response to COVID-19. This was in addition to earlier funding commitments which has led to the Government’s total financial support to senior Australians in aged care being over $1.5 billion since the pandemic began. This funding will be required to be used by providers to fund and support enhanced infection control capability, including through an on-site clinical lead. Funding may also be used to address other COVID-19 related costs such as increased staffing costs, communications with families and managing visitation arrangements. 

Tightening underwriting conditions

Historically, insurers were eager to grow their portfolio in aged care, but this view changed in the past 12 to 18 months, with insurers placing a greater underwriting focus on the sector. Insurers flagged concerns around the low level of deductibles generally applied to many classes of insurance, the risk related to abuse on vulnerable persons, the potential civil or regulatory action from actual or alleged failures in the provision of care as well as the increasing frequency of property losses, particularly in regards to bushfire, flood  and storm related losses.

COVID-19 has further enhanced the scrutiny. The pandemic has highlighted infection control with insurers significantly concerned about the types of claims that could arise from perceived systemic failures in infection control procedures which have the potential to impact several classes of insurance. 

There is also the increased workforce exposure and impacts this has or could have on workers' compensation. This has led to insurers questioning their risk appetite for the sector: They are adapting their wordings and underwriting strategies to reduce their risk exposure in relation to aged care  and community services providers. 

Insurers change their approach

Insurers face an increased risk of claims from the aged care sector during the pandemic and have therefore placed a greater focus on scrutiny of risk, allocation of capacity, premium rates, terms, conditions and coverage. 

Some insurers are pulling out of aged care altogether while others are not writing new business for some classes such as directors and officers (D&O), professional indemnity, or are applying infectious disease exclusions or limitations across all classes of insurance. 

Generally, insurers have implemented tighter underwriting criteria during the renewal risk analysis process to gain a level of comfort about a providers’ ability to adapt and survive COVID-19. When they don’t feel comfortable, they may decline to offer any renewal terms instead of relying on policy exclusions.

The changing underwriting approach has affected the adequacy and the cost of cover as well as the levels of retention aged care operators are required to keep. 

The aged care insurance market recognises the volatility and the weakness of relying solely on policy terms and exclusions to avoid risk and will be taking a closer look at businesses to form a view of how the facilities have been able to manage the crisis so far, and the likelihood that the business can continue to do so successfully moving forward. It is now more important than ever to give underwriters comfort that providers are managing these risks.

Preparing for renewal

The outcome of renewal negotiations will now more than ever before reflect the quality of underwriting information provided as well as the relationship between the client, broker and the insurer.

Residential aged care providers will need to demonstrate that they have implemented appropriate pandemic risk management measures. In addition to the standard underwriting information and proposal forms, businesses will need to supply the following supplementary information in order to get renewal terms:

  • Compliance with all federal and state health department requirements in respect of COVID-19.

  • The resources that have been allocated to protect employees and residents.

  • Any COVID-19 infection cases within the facility, description of their cause, the handling, and the continuous improvements/precautions implemented to prevent any further infections.

  • The detailed COVID-19 response plan implemented by the provider including the training and education undertaken to ensure it is complied with. 

It is also important to request a detailed claims history, for a minimum of 5 years for property claims, and 10-15 years for liability claims. Management should review these and identify any frequency or severity of claims to be able to manage the impact these could have.  

Lastly providers should report all incidents that may give rise to a claim to be notified to the respective insurer both in the marketing stage and again prior to the expiry of the policy. This will ensure the policy in place at the time of notification, which is likely to be broader than what insurers will be offering for renewal, is the one that will respond in the event the notification develops into a claim. 


Lockton recommends that aged care providers start the renewal process early, at least 3-4 months before the expiry of the policies. Management should also request the presentation of renewal terms at least 3-4 weeks before expiry of the policies to allow plenty of time to produce additional information and conduct further negotiation if required.

It is essential to understand the cover provided by the existing policies in relation to COVID-19 exposures, including business interruption, insolvency, statutory fines and penalties.

An ability to demonstrate the company’s risk management policies and the effectiveness of procedures in place to mitigate claims in the future will be extremely valuable when selling the risk to underwriters.

Renewal terms should be reviewed to ensure that any differences in cover are clear. Care home operators should also consider the impact any changes that removed coverage will have on the business going forward.

Management should keep a robust set of records in relation to the processes in place for risks associated with access screening restrictions, contact tracing, and entry restrictions, all of which will be required as evidence in the event of a claim.

For further information, please contact: 

Vikki Karatovic, Manager Health & Community Services Lockton Australia

T: +61 2 9236 0630 | (opens a new window)