The new Aged Care Act1, effective 1 July 2025, is critical to organisations providing aged care services. The goal of the legislative changes is to improve the ways services are delivered to older people in their homes, community settings and approved residential aged care homes.
As the landscape of aged care in Australia undergoes significant transformation, providers must prepare for the obligatory changes introduced by the new Aged Care Act 2024, while also reassessing their insurance coverage and risk management protocols2.
Two significant changes for aged care providers include the introduction of statutory duties and compensation pathways for damages in case of duty breaches — we outline key information and risks to be aware of with these changes.
The new statutory duties and aged care providers' responsibilities
The Act introduces two key statutory duties as part of the changes to the new Aged Care Act 20243:
- provider duty — focus on proactive harm prevention and care standards
- responsible person's duty — focus on leadership accountability and culture of safety.
The new statutory duties require registered providers to ensure, as far as reasonably practicable, that their conduct does not cause adverse effects to the health and safety of those receiving these aged care services.
Additionally, responsible persons within a registered provider organisation must exercise due diligence to ensure compliance with the provider's duty. Responsible persons include:
- executive decision makers
- individuals with significant influence over operations
- registered nurses managing nursing activities
- excluded: those solely managing day-to-day operations.
Non-compliance by a registered provider can result in significant fines being imposed and personal liability for responsible individuals within the provider organisation, for breaches of statutory duties where this results in a serious injury or illness to a resident.
The penalty amount depends on the severity of the breach and the harm caused, with the highest penalty imposed for a breach by an entity being 4,800 penalty units (~$1.58 million)4.
New compensation pathways for damages claims against providers
A new compensation pathway allows affected individuals to seek compensation for damages if the aged care provider is found guilty of breaching their duty.
Either the Aged Care Quality and Safety Commission or the affected individual may apply to the Federal Court or the Federal Circuit and Family Court of Australia for an order for compensation5.
These courts may order the aged care provider concerned to compensate the individual for serious injury or illness if the provider is liable for a civil penalty under sub sections 179(3) and (5) and the serious injury or illness resulted from the contravention.
The compensation pathway is not intended to replace existing compensation arrangements for personal injury. While individuals who suffer harm may be permitted to bring actions for both compensation for personal injury and compensation under the new Act, they will not be entitled to "double dip'.
Key risk implications about the new statutory duties and compensation pathway
- Stricter accountability: the duties are no longer 'strict liability' offences (i.e. offences that do not require proof of fault). However, the Act places a stronger emphasis on holding providers accountable for breaches that lead to serious harm, even if they were not intentionally negligent, when assessing breaches of duty.
- Increased penalties: while criminal penalties and sanctions have been removed, potential civil fines for serious breaches can be significantly higher compared to previous legislation.
- Individual responsibility: as well as penalising the provider organisation, individuals within the organisation who are responsible for the breach can also face personal liability.
Key implications for aged care providers' insurance
The new Aged Care Act 2024 has several implications for risk management and insurance for aged care service providers. While the Act does not explicitly refer to insurance, many of its provisions create potential risks to be managed and which may have consequences for their insurance coverage and premiums.
Some risk exposures that the new Act may affect
Increased regulatory scrutiny and enforcement: the Commission will assess applications for registration and can take regulatory action, including imposing serious civil penalties if providers do not meet the conditions. This increased scrutiny heightens the risk of non-compliance and providers will need robust compliance programs.
New duties and obligations: new duties for registered providers, workers and responsible persons, as well as new duties for digital platform providers supporting aged care delivery. These expanded obligations create new areas where providers could potentially fail to meet their legal requirements, increasing their exposure to regulatory penalties and potential litigation.
Enhanced aged care quality standards: failure to meet these higher standards increases the risk of negative outcomes for care recipients, leading to potential complaints, regulatory action and civil claims.
Emphasis on rights and person-centred care: the Act includes a Statement of Rights for older people. Failure to uphold these rights in service delivery could lead to complaints and potential legal challenges, highlighting the need for strong policies and staff training in this area.
Whistleblower protection: encouraging the reporting of issues may lead to an increase in reported incidents and potential investigations, requiring providers to have effective processes for handling and responding to reports.
Banning orders: the Commissioner has the power to issue banning orders to stop workers and providers delivering certain types of aged care services. This represents a significant operational risk if staff or the organisation are the subject of these orders.
What this means for insurance: insurance programs should be reviewed to ensure they cover the new duties imposed on organisations and individuals under the Act, as well as the new compensation pathways. Policy limits also should be assessed to ensure they are sufficient to cover the increased civil penalties applicable.
In consideration of how the new, increased civil penalties could impact directors and officers' liability, management liability or statutory liability policies, check to ensure they cover investigation costs, defence costs and civil fines arising out of a breach of whistleblowing laws and protection.
It's also important to review existing insurance policies to ensure they will adequately cover the potential liabilities arising from the new Act, such as breaches of duty of care, regulatory penalties (where insurable) and legal costs associated with investigations and claims.
How aged care providers can reduce risks with pre-emptive risk mitigations
These increased regulatory requirements, duties, standards and enforcement powers call for increased risk management measures to proactively identify, assess and mitigate risks under the new Act. These may include compliance monitoring, incident management and quality improvement processes and strong contracting procedures.
Insurers will likely assess the new risk landscape when determining premiums. Aged care providers can proactively anticipate underwriting scrutiny and mitigate the effects of the new legislation on premiums by sharing details of their risk mitigation activities with their brokers. With increased accountability and potential for scrutiny, thorough and accurate documentation of care delivery, assessments and decision-making will be essential in defending against potential claims. Investing in comprehensive training for staff and implementing robust compliance programs will be critical to mitigating risks and demonstrating this to potential insurers.
Leverage our risk management tools and broker expertise for aged care providers
The new Aged Care Act 2024 introduces a more stringent regulatory environment which may have a significant impact on the insurance landscape for the aged care sector.
Working in partnership with a risk and insurance broker who have expertise in this sector adds depth and knowledge to the risk management considerations — Gallagher has strong capability to support organisations in this sector. We use proprietary analytical tools to help address your specific aged care facility risks by conducting a thorough analysis of your insurance program, completing an assessment and improvement plan and developing a go-to-market strategy.
