Australia’s aged care sector faces mounting challenges as the impacts of climate change and regulatory reforms reshape the landscape.
Brokers such as Gallagher Australia and Lockton are advising facility operators to prepare for heightened risks from extreme weather events and significant new obligations under the Aged Care Act, which takes effect on July 1, 2025.
The increasing frequency and severity of natural disasters, including floods, bushfires, and storms, has resulted in escalating insurance claims.
For example, the Black Summer bushfires in 2019-20 led to claims exceeding $2.6 billion, while the 2021-22 flooding in New South Wales and Queensland generated $6 billion in damages. Aged care facilities located near waterways or bushland are particularly vulnerable to these events.
In response, insurers are reassessing their willingness to underwrite properties in high-risk areas, such as northern New South Wales and Queensland.
Gallagher advised operators to evaluate their risk profiles and consider measures like obtaining third-party risk engineering reports to demonstrate proactive risk management. These reports can help insurers assess a property’s resilience to extreme weather, which may support policy renewals or improved terms.
With insurers increasingly introducing higher deductibles or offering limited coverage, aged care operators are exploring alternative options such as parametric insurance, which pays out based on predefined events like floods or bushfires. While these solutions can provide tailored protection, they often come at a higher cost, requiring operators to balance risk mitigation against affordability.
Beyond property damage, extreme weather events also raise the stakes for liability coverage.
Public liability and directors and officers (D&O) insurance are essential for aged care operators, particularly in scenarios requiring resident evacuations. If an evacuation is alleged to be poorly managed, operators could face claims that their procedures were inadequate, exposing them to legal and financial risks.
Both Gallagher and Lockton stressed the importance of robust emergency preparedness plans that detail protocols for evacuations. These plans should be regularly tested and documented, ensuring that insurers and regulators can review them if claims arise following a disaster.
The upcoming Aged Care Act introduces additional regulatory responsibilities for aged care operators. Among its key provisions is the concept of “associated providers,” which applies to third-party entities delivering services on behalf of registered aged care providers. These services may include cleaning, catering, or labour hire arrangements.
Under the act, registered providers are directly responsible for ensuring that associated providers comply with aged care standards, even if these entities operate under separate contracts. This accountability cannot be outsourced, meaning aged care operators must carefully manage relationships with third-party providers.
Lockton highlighted several insurance implications stemming from the act, including:
The act also broadens the definition of aged care workers to include employees of associated providers. This change places additional responsibilities on registered providers to ensure all workers meet the same screening and compliance requirements as their direct employees.
Lockton said the new regulatory framework is expected to affect several key insurance policies:
Lockton noted that some insurers may decline to extend coverage to include associated providers, leaving registered providers to self-insure these risks or negotiate higher premiums.
To navigate these challenges, both brokers recommend that aged care operators take proactive measures to address evolving risks and regulatory obligations.
Operators should regularly review agreements with associated providers to ensure compliance with the Aged Care Act. They should also work with brokers to assess whether current insurance policies adequately address expanded liabilities.
Implementing risk mitigation measures, such as catastrophe modelling and engineering reports, can demonstrate a commitment to minimising exposures.
Providers must establish robust systems to monitor associated providers, ensuring adherence to regulatory standards.
Regularly test and update evacuation plans to protect residents and minimise liability risks during extreme weather events.
Collaborating with legal and insurance professionals can help providers identify coverage gaps and ensure compliance with new obligations.