Care costs remain one of the most material drivers of claim severity in catastrophic injury cases. While headline inflation has moderated, inflation within the care sector continues to outstrip wider economic measures.
The Employment Rights Act 2025 received Royal Assent in December and will introduce two developments of direct relevance to insurers: the establishment of the Fair Work Agency (from April 2026) and the creation of a mechanism for legally binding Fair Pay Agreements in adult social care, expected to take effect from around 2028. These changes sit alongside demographic pressures and a tightening immigration regime for care workers. Taken together, they risk creating a perfect storm of fewer care workers and higher care rates over the medium term.
In this article we summarise where matters now stand, the expected policy timeline, and why this is relevant to settlement strategy and long-term indemnity exposure.
The Office for National Statistics’ National Population Projections (2022-based) highlight significant structural demand pressures:
On current assumptions, this implies a need for at least a 10% increase in the care workforce by 2047 merely to maintain today’s already strained levels of provision. These projections underscore that demand-side pressure on care services is structural and long term.
The Employment Rights Act 2025 establishes the Fair Work Agency (FWA) as a new, consolidated employment enforcement body. While the Act is now law, implementation will be phased.
Guidance, codes of practice and enforcement priorities are still in development. However, once operational, the FWA will be responsible for enforcing compliance with any sector-specific pay agreements introduced under the Act.
Separately from the creation of the FWA, the Government has committed to introducing a Fair Pay Agreement (FPA) for adult social care workers.
Once an agreement is in force, compliance will be enforced by the FWA alongside other employment rights. While the detail is still to emerge, the direction of travel is clear: higher and more standardised pay floors across the care sector.
Overlaying these developments is the Government’s immigration policy set out in its white paper, Restoring the Immigration System, published on 12 May 2025.
Of particular relevance to care:
While the policy objective is to improve consistency and quality of care, the practical effect is likely to be a contraction in the available labour pool at precisely the point when pay floors are rising and demand is increasing.
Although the full effect of these reforms is unlikely to crystallise until 2028, their relevance is immediate. Long-tail claims require forward-looking assumptions about future care costs. Reserving, PPO pricing, lump-sum settlements and reinsurance strategy all depend on realistic modelling of care inflation.
Keoghs has already shared analysis of these risks with parliamentarians and continues to seek engagement to highlight the unintended consequences for catastrophic injury compensation. In the meantime, insurers should assume that care costs will remain structurally elevated and may accelerate again as these reforms take effect.
We will continue to monitor legislative developments, secondary regulations and guidance from the Fair Work Agency, and will update clients as greater clarity emerges.
You can also find our latest care data analysis here.
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