Radical change hits aged care sector insurance

Eric Lowenstein
Eric Lowenstein, CEO, Tego Insurance

In this guest post, Eric Lowenstein, CEO at healthcare specialist underwriting agency Tego Insurance, shares his views on why radical changes are occurring in insurance for the aged care sector.

Three key factors have dramatically altered liability insurance for Australia’s aged care sector.

They are the outcomes of the Royal Commission into Aged Care Quality and Safety, the ramifications of Covid-19, and insurance market conditions.

The once-profitable insurance product’s high loss ratio and flat pricing have prompted several insurers, including some with security provided by the world’s largest insurance market, Lloyd’s of London, to withdraw from underwriting the aged care sector.

Many insurers faced high costs after the Royal Commission identified key failings in the sector and claims followed.  Insurers were also hit with a double whammy of losses resulting from Covid-19 outbreaks across aged care facilities.

It’s not surprising the loss ratio was so high, but competitive factors forced pricing to remain flat. That’s unsustainable for underwriters, sparking the decision to leave the market.

Some saw the aged care sector as the “canary in the coalmine” for healthcare more broadly. There was an increase in coronial inquests, more Australian Health Practitioner Regulation Agency and Medical Board investigations, and claims resulting from substandard care.

The flat pricing, a factor of intense competition among insurers, failed to reflect the increased risk landscape, which was coupled with higher claim investigation costs.

Consequently, underwriters that elected to remain in the market have reassessed the risk, resulting in premium rates doubling and even tripling, excesses doubling, plus exclusions for Covid-19 and communicable disease outbreaks being added to policy wordings. Sub-limits have been applied or existing sub-limit sums insured reduced for abuse cover and investigation costs.

Increased pricing and restrictive policy terms are now the norms for aged care service providers.

However, insurance is a cyclical industry and, over time, the market is likely to level out.

Aged care is an ever-growing sector as Australia’s population gets older. In the year to 30 June 2020, the number of Australians aged 85+ years was 527,400, which will increase to more than 1.5 million by 2058.

The length of stay in residential aged care, increased care needs, demand for varied care choices, and older people’s desire to stay in their own homes as long as possible, all create a need for more aged care services, ranging from low-level support to more intensive services.

The changing demographics, combined with changing patterns of disease and dependency, and older people’s expectations, will continue to impact on demand for aged care services.

Because the Royal Commission threw such an intense spotlight onto the sector’s shortcomings, there is now better government funding and a raft of reforms, leading to increased investment, governance and diligence from aged care providers.

Tego decided to enter the aged care sector with a combined liability package because we have the advantage of coming fresh into the market, unburdened by legacy and long-tail claims, and at a time when pricing still reflects historical claims.

For a market participant able to be selective about the risks it writes and adopt a long-term approach in a rapidly expanding sector, there is the opportunity to provide cost-effective cover.


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