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Care Solutions Market Update

20/07/2022 · 5 minute read

The state of the insurance market for aged care providers Q2 2022

Marsh’s Global Insurance Market Index has been issued for Q1 2022. The overall Pacific region continues to see easing of price increases for property, financial and professional lines. However, aged care providers are experiencing effects counter to the market as a result of the Aged Care Royal Commission, COVID-19 and continuing extreme weather events.

Property Insurance

  • Local extreme weather

In February 2022, Australia’s east coast experienced severe storms, heavy rainfall and flash flooding. As at 23 May 2022, the flooding that devastated south-east QLD and northern NSW is now the fourth most expensive disaster in Australia’s history, according to the Insurance Council of Australia (ICA). Estimated insurance costs of the natural disaster have climbed by almost $1bn between April and May 2022. The total cost is now at $4.3bn with the actual damage bill likely to be significantly higher.

The property insurance market continues to focus its attention on ‘tier 2’ catastrophe claims such as storm, flood, hail and bushfire and are imposing increased deductibles and reduced limits of cover for insured locations within prone areas.

  • Rise in construction costs

A shortage of labour, increased fuel prices as a result of the Russian-Ukraine conflict, and the rising distribution charges for construction materials continues to increase construction costs.  Insurers are very concerned as to the maximum limit of cover they will apply across a property portfolio, as they are now required to seek reinsurance to support large limits of liability.

  • Premium rates

While premium rates have historically been very competitive for aged care providers based on their risk profile, the last two years have seen a large increase in claims for secondary catastrophe perils. As a result, challenges remain for clients with poor loss history and locations in catastrophe zones, with flood of particular concern.

Liability and Financial and Professional Lines

Overall, the Pacific region’s casualty (liability) premiums rose 15% in Q1 2022, and financial and professional lines pricing rose 10%, down from an 18% increase last quarter.

There is an easing off for aged care providers’ Directors & Officers Liability as the continued improvement in governance following the Aged Care Royal Commission and strict management of COVID-19 outbreaks continue. 

In contrast, aged care providers are facing steep increases for Liability and Medical Malpractice. There is still limited cover available for elder sexual abuse. Insurers want to see rigorous risk management for safeguarding and governance to determine whether they will provide this cover.

Communicable Diseases Cover Exclusions vary across insurers, with the minimum exclusion applied being that for any business interruption or liability exposure for diseases listed under the Biosecurity Act (at this stage the key disease is COVID-19).

Increased deductibles are being imposed for Contractors and Labour Hire claims due to the rise in recovery claims being made by Workers Compensation insurers of injured contracted staff. Aged care providers had to use much higher numbers of casual or contracted workers, due to the pressure of having to enact minimum staff-to-resident ratios, and/or staff having to take sick leave due to COVID-19, stress or physical injury.

Cyber

In the Global Insurance Market Index for Q1 2022, cyber insurance is noted as the largest exposure for insurers, with a sharp increase in premiums, deductibles and a strong requirement for very well-managed cyber protection by all insureds.  Significant increases in premiums and deductibles along with severe restrictions of cover are being applied by cyber insurers.

Since the COVID-19 pandemic began, various care providers globally have been targeted in a variety of complex and coordinated cyber-attacks. For aged care providers, predatory access to customers’ financial and health information can be catastrophic for both the provider, the residents and their families.

Acquisitions

We have seen an uplift in acquisition activity over the last year, particularly of smaller individual aged care providers who are unable to cope with the sharp increase in legislative and governance responsibility as a function of the Aged Care Royal Commission and the intense focus by state and federal governments on the vulnerability of the elderly to illness, hospitalisation and even death due to COVID-19.

Insurers remain careful about accepting risk as a function of acquisition. Disclosure of liability transfer of key aspects such as the future cost of current claims and open court cases, even speculation about pending class actions (for example), will affect the insurability of the current program and the premium and deductibles that care insurers will seek to impose for inclusion of the acquisition risk.

Key actions for aged care providers in the current insurance market

  • While Marsh will continue to seek options to reduce premium by exploring levers such as increasing deductibles or reducing limits of cover, providers must be clear on the extent of their risk appetite for increased deductibles
  • Providers must be able to demonstrate that there is a consistent focus and investment in improving risk management across the entire organisation (up to Board level) with a focus on safeguarding, prevention of neglect, and clinical risk governance.
  • Providers must be show evidence that all labour hire staff and contracted staff have the same induction, safety management and support to prevent physical and mental injury as employees
  • It is important to ensure that replacement valuations of buildings take into account rising materials and labour costs. Regular and comprehensive property risk surveys should be undertaken

Marsh is able to assist with detailed support programs across these action plans as necessary.

If you have any questions, please speak to your Marsh risk advisor or contact the Care Solutions team

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This publication is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. Marsh shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Any statements concerning actuarial, tax, accounting, or legal matters are based solely on our experience as insurance brokers and risk consultants and are not to be relied upon as actuarial, accounting, tax, or legal advice, for which you should consult your own professional advisors. LCPA 22/286