State insurer icare will offer physical and sexual abuse cover for contracted providers of youth homelessness and other out-of-home care services in NSW, providing a long-term solution for the challenging niche.

The measure follows a market failure caused by private insurers withdrawing from the cover for foster and residential housing programs when the frequency and quantum of claims soared.

icare will operate a special liability insurance scheme from next year, replacing the state’s emergency scheme that ends on December 31.  

The state insurer expects to issue quotes to eligible providers from late next month. The limit of liability is $10 million per occurrence, retrospective to mid-2007.

The program only covers Department of Community Justice (DCJ) out-of-home care and youth homelessness contracts.  

“I’m pleased to advise that the legislative amendments required to establish the scheme were made last month and works are on track for the insurance scheme to commence in January,” DCJ director Belinda Norton said.

Private care providers contracted by the department have been unable to obtain suitable physical and sexual abuse (PSA) cover from the commercial market since 2021. The department set up a backstop scheme while longer-term options were explored.

“Investigations of longer-term solutions determined that state and territory governments providing cover would be the most viable option,” Ms Norton said. “After analysis of available options, the NSW government decided to establish a specific government insurance scheme.”

icare senior underwriter Leeanne Lynch says organisations working within legislative frameworks that have NSW Child Safe Standards will be eligible, including those with past abuse claims if mitigation processes are now in place.  

Unlike under the backstop scheme, being unable to obtain cover in the commercial market is not required for eligibility.

The new program offers higher coverage limits and fewer exclusions than commercial options, providing “comprehensive protection at a competitive price”, icare says.

The scheme includes a $10,000 deductible for organisations with revenue below $20 million, or $50,000 for those above $20 million. The policy also allows up to $1 million in counselling services when a claim has been paid.

Gallagher Bassett will register claims on icare’s behalf and they will be managed by an icare claims specialist team.

“Our claims team understand the needs of dealing with such sensitive situations, so they are well informed of the trauma approach in handling these matters,” Ms Lynch said.

“We handle them with fairness and transparency.”

She says next year the average premium for out-of-home care is about $166,500, and about $26,670 for youth homelessness providers.

“There’s potentially an increase in premiums, but the extent of the cover is much more significant than the short-term indemnity scheme,” Ms Lynch said.

The new program follows passage of the NSW Self Insurance Corporation Amendment (Special Liability Insurance) Bill 2024 on August 14, which ministers say “solves the longstanding insurance issue” and ensures “vulnerable children and young people can stay safe in our state”.

Industry sources say the icare program is vital to ensure the viability of service providers.

One told insuranceNEWS.com.au it is “an excellent result for the sector”, and there are hopes other states will follow suit.