The New Aged Care Act: An insurance perspective

The Australian Government introduced the Aged Care Bill (2024) to Parliament on 12 September 2024. It passed Parliament on 25 November 2024 and it will become the new Aged Care Act 2024 (Cth) from 1 November 2025 (New Aged Care Act).

From a risk standpoint, we are currently seeing residential aged care facilities facing challenges from a number of perspectives: funding, workforce and capacity. 

Currently there are around 270,000 beds in residential aged care facilities across the country. Over the next 5 years as “boomers” start to enter aged care facilities, this need will increase to around 350,000 beds.

The transition of care between the hospital, the aged care facility, and retirement living or transitional respite care is where the largest risks exist. Further, the Federal Government is encouraging more funding into home care services to keep people in their homes for as long as possible (and deliver services remotely) in addition to residential aged care.  

Due to industry pressure, the New Aged Care Act roll out has been pushed backed to 1 November 2025.

What will this mean for insurers? 

The aged care industry is set to accelerate its growth over the next 5 years.

With the New Aged Care Act coming into force, the overarching objective is to ensure higher standards of care and enhanced accountability to aged care providers. It binds the actions of associated providers to registered providers’ own liability. 

For insurers, these increased risks are likely to lead to aged care providers seeking to extend their statutory liability coverage to include associated providers.

It is not common for insurance policies to cover liability that has been contracted out to third parties of an insured. The New Aged Care Act, in inherently tying the actions of associated providers to aged care providers’ own liability, may create demand for a specialised form of insurance. If insurers decide to extend coverage, it is imperative that the wording is carefully considered to account for conditional declinature or increased premiums that are appropriately proportionate to the level of potential exposure faced.

Insurers will need to carefully consider the terms of any additional coverage so as not to absorb a disproportionate number and broader scope of new claims.

Registered aged care providers should check to ensure their policies include comprehensive cover for all costs associated with regulatory investigations. Notwithstanding fines emanating from contravention of these duties; associated costs also include legal fees, document preparation, conferrals and inquiries, whether informal or through the court system. 

Compensation claims from affected parties are also a financial liability to be aware of, as the New Aged Care Act introduces an avenue for such claims to be brought if an aged care provider breaches its duties. The process for compensation is facilitated by direct application to the Aged Care Quality and Safety Commission (ACQSC) consequently resulting in the likelihood of an influx of claims. These claims are potentially insurable, depending on policy wording, and so insurers should actively review existing policies ahead of 1 November to account for this implication. 

If insurers decide to extend coverage, it is crucial the policy wording is carefully considered to account for conditional declinatures or increased premiums that are appropriately proportionate to the level of potential exposure faced.

Background to the New Aged Care Act

Its introduction, born out of the findings and recommendations of the Royal Commission into Aged Care Quality and Safety (Royal Commission), represents the latest development in a slew of heightened governance measures across the sector, including the Code of Conduct for Aged Care which was introduced on 1 December 2022.  

The New Aged Care Act will operate in conjunction with the Code of Conduct to promote a higher standard of care for older people by replacing existing legislation deemed ‘not fit for purpose’, including the current Aged Care Act and the Aged Care Quality and Safety Commission Act 2018. 

The New Aged Care Act will:

• Create a singular entry point to make access to the aged care system for older people easier.
• Include a fair, safe and singular assessment process.
• Enforce rules on supported decision-making to ensure older people have choice and control.
• Improve funding to home care providers, including clinical, everyday living and assistive technology services. 
• Introduce a new approach to the regulation of aged care providers to ensure delivery of safe, quality aged care services. 
• Provide additional protection for whistleblowers to allow reporting without fear of reprisal.  
• Strengthen the powers of the regulator, the ACQSC in managing risk, ensuring integrity and supporting aged care. 

The increased stringency of governance introduced by the New Aged Care Act is likely to have significant repercussions on industry executives, board members and authoritative figures involved in planning, directing or controlling activities within the aged care sector. 

Statutory Liability

The New Aged Care Act, in its pursuit to prioritise the rights, decisions and needs of older individuals, establishes two new statutory duties, being:

• A duty placed on registered providers to ensure their conduct does not cause adverse effects to the health and safety of individuals (Provider Duty). 
• A duty for ‘responsible persons’ to exercise due diligence to ensure the provider complies with the Provider’s Duty (Responsible Person Duty).

Under section 12 of the New Aged Care Act, a responsible person is taken to mean “a person who has responsibilities associated with managing the operations of a registered provider or one of its funded aged care services.” This includes “persons responsible for the executive decisions of the registered provider.”

A member of the governing body of the provider is also considered responsible for executive decisions, thereby bringing directors of a body corporate under the Corporations Act 2001 (Cth) within the definition of a ‘responsible person’.

The New Aged Care Act also introduces the concept of associated providers, being entities which deliver services on behalf of an aged care provider. Under section 11(6) of the New Aged Care Act, an associated provider is one who “engages in conduct under an arrangement with a registered provider relating to the registered provider’s delivery of funded aged care services.”

Registered providers will be vicariously liable for the actions of their associated providers, whether they are registered or not. This is likely to include replacement workforces of nurses and staffing in aged care facilities. 

Workers of an associated provider are considered to be aged care workers under the New Aged Care Act and will be subject to the same obligations as registered providers’ employees.

Civil Penalty Provisions

Significant civil penalties will be imposed for contravention of the Provider Duty and the Responsible Person Duty, coinciding with the increase in regulatory investigations carried out by bodies such as the ACQSC. Given the stringency of the corporate governance regime, it is paramount aged care service providers and responsible persons are aware of the greater risk of non-compliance. 

Directors & Officers / Management Liability and Other Insurance Policies

The New Aged Care Act’s implementation will place direct accountability on directors for the quality, standard and safety of aged care services. This increased regulation of associated providers may extend aged care service providers’ governance requirements beyond their own surveyable remit, thereby increasing the complexity of responsibilities and heightening the risk of governance breaches. 

The scope of D&O insurance, which is designed to indemnify insured directors for personal liability arising from statutory governance requirements, may need to be amended to specifically include liabilities arising from the actions of associated providers. 

Considerations for amendment may include ensuring that professional services exclusions on D&O policies are written back in to account for a failure to provide supervision and/or exercise due diligence. 

The broad definition of responsible persons which includes not only directors and executives but also individuals with authoritative, decision-making roles, expands the scope of persons potentially facing personal liability for breaches. 

Coverage considerations should also include the new liabilities introduced by the New Aged Care Act to ensure the policy limits are appropriately adjusted to accommodate for the increased civil penalties for non-compliance. 

The obligations imposed by the Act will also have the potential to impact claims under management liability, statutory liability, professional indemnity and public and products liability policies. Existing insurance policies such as these are likely capable of providing indemnity under the new regime. 

Whilst each policy must be considered on its own terms the following table provides a general overview of how certain classes of insurance may respond: