Aged care facilities are often located in or near natural beauty spots such as waterways and bushland due to the attraction and benefits of these tranquil settings. Studies have determined that outdoor space delivers benefits for senior people, particularly those living with dementia. However, operators of aged care facilities located in or near waterways or bushland need to consider environmental risks such as extreme weather events and fires.
As the frequency and extremity of severe weather events increases, so does the risk of property damage. The rise in severe weather events is leading to more claims for property damage or destruction.
The cost of severe weather events in insurance claims has risen markedly — for example $2.6 billion for the 2019/20 Black Summer bushfires, and $6 billion for the 2021‒22 New South Wales and east Queensland floods1.
Given the increasing rate of severe weather events, it's essential for aged care communities to understand their insurance policies and make sure they have adequate coverage.
As severe weather events contribute to significant financial losses for insurance providers in states like Queensland and northern NSW, some insurers are reluctant to offer new insurance policies in high-risk areas.
Under these conditions it's important for aged care facility operators to review and evaluate their risk profile and identify the most critical exposures and the areas where there are opportunities to mitigate risk.
If the aged care facility is in an at risk area it may be advantageous to obtain a third-party risk engineering report to assist in demonstrating proactive risk management to potential insurers.
Changes in the insurance industry are affecting the accessibility of property policies, with some insurers pulling back on what they are prepared to cover and others layering deductibles so the property owner carries an agreed proportion of the cost of a claim.
A deductible is an insurance contract provision that requires the policyholder to pay an initial amount of a covered insurance claim before the insurance contract kicks in to pay the remaining costs. It also allows the policyholder to pay a higher premium to reduce or eliminate the deductible if a claim is made.
For example, if the owner of a $50 million building opts for a $25,000 deductible, they are self-insuring the first $25,000 on that loss if they need to make a claim.
There may be options to approach speciality markets to provide coverage that traditional insurance carriers don't offer but likely at high premiums.
These may include covers such as 'parametric' insurance (a type of insurance that pays out a predetermined amount based on the occurrence of a specific event or parameter, such as a natural disaster, rather than the actual loss incurred) or opportunities to 'buy-down' the deductible.
Facility operators will need to have done their own catastrophe modelling or risk analysis and be able to answer underwriters' questions, demonstrating what they are doing to close the gap on those risks. Underwriters will expect to see these reports.
It is advised to check the scope of cover provided by liability policies such as public liability and directors and officers' liability as this may come into play in an evacuation scenario.
Aged care facility operators should have an emergency preparedness plan in place, with clear protocols so that residents can be quickly and safely moved if conditions warrant evacuation.
If procedures are alleged or deemed to be inadequate in the event of a catastrophe which results in casualties, the operators may be liable. The limit of insurance should be sufficient to cover a catastrophic event resulting in multiple casualties to residents or other visitors.
The person managing an aged care facility's insurance and risk management program should have a general understanding of their cover throughout the year. This involves reviewing the program at least once a year and understanding what's potentially changing in the market.
In reviewing cover it's important to know what resources are available through your broker and insurer. Knowing your limits and deductibles in a given scenario can help avoid being blindsided by a claim.
While it may not be easy when considering all the potential investments you could be making, it's essential to invest in the areas of your property that need to be updated and maintained to ensure they are kept up to standard and are equipped to sustain extreme weather events.
An example of this is to regularly inspect your roofing and gutters, to ensure they can withstand a significant downpour or are clear of dry vegetation which could catch fire from bushfire embers. Insurance contracts require reasonable action to mitigate loss and exclude losses caused by general wear and tear.
An outlay now could be the difference between having an eight-figure claim and mitigating risks before they manifest.
Monitoring the risk control and engineering surveys undertaken can help recognise when it's time for capital expenditure.
Keeping a watching brief on what's changing in the insurance industry can help identify early what solutions are available.
Staying up to date with new mitigation tactics may help aged care facilities operators reduce the damage sustained from severe weather events, or even avoid having to file a claim at all.
Our specialist aged care insurance brokers have great experience in the aged care industry. We recognise that your aged care facility is unique, and so are your insurance and risk management requirements.
We are focused on deeply understanding your organisation so that we can position you to financially survive any insurable event, and we have a team of specialist insurance brokers who are able to deliver on our promise.
1"Insurance Catastrophe Resilience Report 2022—23," Insurance Council of Australia, 2023. PDF download.
Gallagher provides insurance, risk management and benefits consulting services for clients in response to both known and unknown risk exposures. When providing analysis and recommendations regarding potential insurance coverage, potential claims and/or operational strategy in response to national emergencies (including health crises), we do so from an insurance and/or risk management perspective, and offer broad information about risk mitigation, loss control strategy and potential claim exposures. We have prepared this commentary and other news alerts for general information purposes only and the material is not intended to be, nor should it be interpreted as, legal or client-specific risk management advice. General insurance descriptions contained herein do not include complete insurance policy definitions, terms and/or conditions, and should not be relied on for coverage interpretation. The information may not include current governmental or insurance developments, is provided without knowledge of the individual recipient's industry or specific business or coverage circumstances, and in no way reflects or promises to provide insurance coverage outcomes that only insurance carriers' control.
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