Current out-of-home care insurance market crisis

Luke GearyLuke Geary, Partner and Sara Taylor, Lawyer, Mills Oakley share their insight regarding out-of-home and residential care sector in Australia. Sara Taylor


Following the Royal Commission into Institutional Responses to Child Sexual Abuse, key law reform has allowed an avalanche of civil litigation to develop whereby individuals may seek compensation against institutions in respect of personal injuries arising from sexual, or serious physical or psychological abuse. The amount of compensation awarded to claimants has become increasingly significant (in the $millions), particularly in the States of Victoria and New South Wales. Subsequently, out-of-home and residential childcare providers and their insurers have had to compensate for a rapidly increasing number of claims, with more money, and no means to accurately quantify and assess the risk.

Other key considerations are that with the lifting of the statutory time limitation in which to bring a claim against an institution, insurers are put on risk indefinitely, and further the ability to mitigate risk in an out-of-home care setting is extremely difficult.

Progressively over recent years, private insurers of out-of-home and residential care providers have withdrawn their cover in the face of this surge of claims, with the last withdrawing in 2021. This may effectively ensue an out-of-home and residential care market collapse within our community, if providers cannot obtain insurance for their services.

Government & sector response to date

In response to the unfolding crisis and lobbying by out-of-home and residential care providers, certain State governments have implemented interim insurance coverage arrangements.

New South Wales has introduced a short-term indemnity scheme, with an aggregate indemnity limit of $5million. However, this scheme only covers incidents of abuse occurring from 2017. This should only be expected to cover a very small amount of claims, given that it is well-documented now that the average disclosure / reporting period can be in excess of 20 years after the abuse occurred. The scheme ends at the end of December 2022.

A governmental Inter-Jurisdictional Working Group (IJWG) has also been established to identify feasible long-term options for a response to this crisis. So far, the IJWG has developed a work plan setting out the key milestones for developing a sustainable long-term solution for future implementation by the end of 2022. Finity Consulting, who was engaged to support the IJWG, delivered a report to the IJWG in September 2022 that canvassed all potential solutions including government-led, sector-led, market-led and government-private sector collaborations.

In June 2022, the IJWG established a Non-Government Advisory Group to support the work of the IJWG in designing and delivering a long-term response. The Advisory Group comprises of NGO out-of-home care providers (including faith-based organisations and Aboriginal Community Controlled Organisations), insurance sector representatives and IJWG representatives.

Until the IJWG can agree on and provide a long-term solution, each State and Territory is responsible for implementing an approach to manage a band-aid solution to the insurance crisis within their own jurisdictions, in the interim.  For information on the NSW interim solution, please see:

Potential strategies for the future

It appears that to make real change in this space and establish a long-term solution, will take an intersectional effort from the NGO Sector leaders, the relevant government departments, and a wide range of external professionals (actuaries, lawyers and insurance underwriting specialists).

As it currently stands, those insurers who have any appetite within the Australian market, are only prepared to offer ‘claims made and notified’ insurance in this space, and not offer retroactive cover for historical claims. Generally speaking, ‘claims made and notified’ insurance will only respond to a claim if the claim is first made during a current policy period and relates to events occurring during either of:

a. a time when the same insurance company held back-to-back and uninterrupted claims made and notified policies with the insured; or
b. the current claims made policy schedule specifically includes retroactive cover going back as far as the relevant period to which the facts and circumstances relating to the claim arise.

Insurers not providing retroactive cover is a serious issue where victims are not likely to report or disclose abuse for decades after it occurred. One mitigating strategy to reducing this disparity may be to implement compulsory education in out-of-home and residential placements with respect to reporting abuses and establishing specific mechanisms that will better foster an environment where children feel they can disclose abuse. This same solution, in a broader sense, could be further applied to schools and other community organisation settings, so that children are receiving this message from multiple sources.

Another strategy is clearly to attempt to better mitigate the risk of occurrence of abuse in out-of-home and residential care settings, although this is extremely difficult in the context of carers and other types of workers having 24/7 access to vulnerable children. Risk could be managed and mitigated by enforcing more stringent child protection policies and practices, part of which is the continuous and regular reporting of compliance with such policies and practices.

This issue can also be somewhat combatted by legal professionals working in the space of institutional abuse claims. As this area of law has developed rapidly in recent years, unfortunately so has the practice of what is known as ‘claims farming’. Claims farming has emerged in so far as:

a. prison inmates are being coached to make claims of historical child sexual abuse;
b. said inmates are then being paid to make referrals of claims / individuals to a company; and
c. the company is then paid by law firms (in some cases, top-tier law firms) in exchange for the statement (and legal business) of an inmate.

This means that a (potentially significant) number people are bringing ingenuine claims and insurance companies are in turn paying out millions of dollars unnecessarily.

This practice has already been outlawed in Queensland with the commencement of the Personal Injuries Proceedings and Other Legislation Amendment Act 2022 (Qld).

Unfortunately though, the other States and Territories are yet to follow suit. Not only does this practice need to be prohibited nationally but individual legal professionals and the firms they work for need to ensure they are acting ethically and morally. Ending this practice would better ensure only genuine claims are being taken on and insurers would not be required to face such a high volume of these claims.

Final thoughts

In dealing with such a complex and sensitive subject, it does not appear that there will be a quick or easy solution to be presented. Again, it seems that an intersectional approach, implemented by a range of different stakeholders, needs to be adopted.

Thus far, the IJWG aims to find and implement a long-term solution by the end of 2022. Hopefully, with the assistance of the Non-Government Advisory Group and representatives from a range of sectors, this is achievable. Until such a solution is implemented, it is the government’s (moral, at least) responsibility to provide interim workarounds.

The out-of-home and residential care sector in Australia is already greatly under-resourced and underfunded. There are presently around 45,000 children in care, nationally.  The consequence of not finding a long-term solution to this insurance crisis will be a far greater strain on a sector that is already underfunded and marred with inherent complex difficulties.

Luke regularly acts for ASX200 listed companies, impact financiers, non-profits and religious institutions nationally. Luke also acts for individuals in high profile, social justice issues cases.
Luke has particular expertise assisting institutions in responding to claims of child sexual abuse under a restorative justice framework and in accordance with best practice principles identified by the Royal Commission into Institutional Responses to Child Sexual Abuse. In other instances, Luke acts on behalf of survivors in certain cases against government agencies and other institutions.
Additionally, Luke has been recognised as one of Australia’s leading lawyers representing victims of human trafficking and labour exploitation. Luke is a recognised expert in modern slavery law and assists large organisations in their compliance with this new regulatory regime.
Luke is often called upon by NFPs / charities at times of crisis to assist them to manage governance, operational and reputational issues which have arisen and which are critical to their survival, typically in Royal Commissions, Coronial Inquests and other major public Inquiries.
Luke is the founder and former managing partner of the unique social enterprise law firms ‘Salvos Legal’ and ‘Salvos Legal Humanitarian’, which are wholly owned by The Salvation Army. You may connect with Luke via LinkedIn

Sara has been a lawyer in the NFPs, Human Rights and Social Impact Team at Mills Oakley since early 2022. As part of her practice, Sara regularly acts for not-for-profits, charities and individuals including survivors of historical child sexual abuse, in civil claims surrounding institutional abuse. Connect with Sara via LinkedIn