Bridging the risk gap in labour hire: practical steps for a changing market

In the past few years, Australia’s labour hire sector has experienced a period of significant growth. This is being driven by several structural factors, including large-scale infrastructure investment, persistent workforce shortages and the opportunities and demands created by the Brisbane 2032 Olympics.  

Businesses are increasingly relying on outsourcing flexible labour to meet demand, with labour hire firms playing a critical role in supplying talent, across sectors such as construction, healthcare and agriculture. However, as the sector scales and diversifies, so too does the complexity of the risk landscape.  

Many labour hire businesses are now facing pressure on multiple fronts. Rising workers' compensation costs and long-tail claims, a more selective insurance market, and increasingly complex contractual arrangements are leaving businesses exposed to risks that are often uninsured or poorly understood.

As demand continues to accelerate, organisations that fail to address these exposures risk carrying liabilities that are increasingly difficult and costly to manage. 

The fundamental disconnect at the core of labour hire

At its core, the labour hire model creates a fundamental tension with how risk is allocated.  

Labour hire firms tend to be the legal employer; they are therefore responsible for workers’ compensation and broader insurance programs, as well as employment obligations. Yet the day-to-day work carried out by their workforce takes place on host sites.

This introduces a divergence between risk ownership and operational control.

As the volume of labour hire placements continues to increase, this misalignment will become even more severe and problematic to manage.

The key pressure points driving exposure

Across the labour hire industry there are several key pressure points that are creating heightened exposure:

• Rising workers’ compensation costs

  Workers’ compensation remains one of the most acute exposures for labour hire businesses. Long-tail claims are driving a large proportion of this pressure particularly where workers are placed into manual and labour-intensive roles across host sites.  

  This is compounded by the operating model of these labour hire firms as detailed above. Claims typically sit with the labour hire provider, even where incidents occur at the site of the host employer. This presents a growing challenge for labour hire providers with increasing premiums and unsustainable programs being likely outcomes.

   

• Contractual complexity and hidden exposures

  Contractual arrangements between labour hire firms and host employers are also increasingly complex. Businesses looking to hire temporary labour tend to pursue contract terms that transfer risk back to the labour hire provider. These obligations often go far beyond what their insurance program covers, creating gaps that sit directly on the balance sheet if left unaddressed. This underinsurance creates one of the most significant and unrecognised risks.

• Insurance market constraints  

  Due to the growing complexity of the risk landscape in this industry, insurer appetite can be limited, driven by claims experience and the recognition that the insured will likely have a lack of control over the environments in which their workforce operates. This results in high premiums and restrictive terms and exclusions.  

• Lack of specialist insight  

  Labour hire is often treated as a standard risk class, rather than a specialist model with a unique set of exposures. Without consulting specialist advice on how risk manifests across employment structure, contractual terms and host site environments, insurance programs fail to respond adequately when tested in real-life scenarios.  

What’s accelerating this risk environment?

The growing demand for labour in the lead-up to the 2032 Olympics, combined with the ongoing skills shortage, is driving a heavy reliance on these labour hire models. Businesses are having to scale and adapt quickly, often expanding into new industries and environments, while their insurance programs have not evolved at the same pace.

At the same time, increased regulatory scrutiny and sustained pressure on workers’ compensation schemes are driving greater focus on claims costs and accountability. This is placing additional pressure on labour hire providers, who remain responsible for these outcomes, despite often having limited control over the environments in which incidents occur.

Together, these factors are creating a complex and varied risk environment and one that demands a more strategic, proactive approach. 

Closing the gap: practical steps forward for labour hire businesses  

To remain competitive and protect their balance sheet, labour hire providers should be focusing on these key areas:

• Partner with a specialist broker who understands labour hire risk

  Relying on incumbent programs that are no longer fit-for-purpose can lead to missed opportunities and can considerably inhibit businesses both operationally and financially. A strategic approach to the insurance market can help identify previously unknown exposures, strengthen insurer confidence and ensure the program remains aligned as the business evolves. Where appropriate, longer-term arrangements can also provide greater certainty around cost, coverage and insurer support.

• Proactive claims management  

  Claims should not be treated as a back-end process. Active and specialised claims management sits at the core of a well-structured insurance program for labour hire providers. Early intervention and ongoing oversight materially influence outcomes, helping reduce cost and premium impact.

  For workers’ compensation, a tailored approach is essential. Labour hire providers face unique challenges, including employment abscondment, limited opportunities to provide suitable duties within host workplaces, and the potential for ongoing wage liabilities after a placement has ended. These factors can significantly increase claim duration and cost.

  A specialist People Risk adviser understands the strategies available to help mitigate these exposures. By leveraging insights such as transferable skills, work history and labour market data, they can support earlier return-to-work outcomes, strengthen claims advocacy and reduce the long-term financial impact of claims.  

• Align contracts with your insurance program  

  Contractual obligations should be carefully reviewed and aligned with insurance coverage to ensure there are no gaps.

  Too often, we see labour hire businesses accepting contractual terms that directly transfer risk back to them, without fully understanding whether these risks are even insurable. Recognising and preparing for this right from the outset is essential to avoiding unforeseen balance sheet exposure.  

• Adopt a whole-of-risk approach

  As businesses diversify into new industries, services and host-site environments, it’s important that all areas of the insurance program continue to reflect those changes. Regularly reviewing the program ensures coverage remains aligned to the business's operations, contractual obligations and strategic objectives.

• Utilise insurance as a commercial lever

  Insurance shouldn’t simply be regarded as an operating cost. For labour hire businesses, insurance costs are often embedded into client pricing. A more efficient program can support more competitive charge-out rates, directly influencing the ability to win and retain contracts.  

A strategic reset in practice

Through an existing relationship with our People Risk team, we were introduced to a large labour hire provider operating across multiple sectors. As we spent time with the business, it became clear that their existing insurance program had not kept pace with their growth, leaving inefficiencies and misalignment with their evolving risk profile.

From the outset we worked closely with the client’s leadership to understand what mattered most to their business. This allowed us to challenge the incumbent strategy and identify where a different approach could deliver a materially better outcome.

Rather than following a traditional market placement, we designed a more targeted strategy, by engaging a select group of insurers capable of delivering a fit-for-purpose solution aligned to the client’s unique risk exposures. This was achieved through a clearer articulation of their risk profile and a more coordinated approach across their broader insurance program.

We were able to completely reshape the program, enhancing their Cyber, D&O and EPL coverages while achieving a 40% reduction in overall premium. Perhaps most importantly, the client moved forward with the confidence that their program was designed to support their business as it continues to grow and diversify.

More broadly, this demonstrates the value of taking a strategic approach that challenges legacy programs and aligns more closely with how the business truly operates.

Looking ahead: aligning risk and growth  

The labour hire sector will continue to play a critical role in supporting Australia’s economy in the years ahead, particularly with the run up to the 2032 Olympics in Brisbane.  

However, as demand continues to increase, so too will the complexities of the risk landscape of these businesses.

Labour hire providers must take a more strategic approach to understanding their exposures and managing their risk. It’s critical that insurance programs are aligned to the operating reality of these businesses, by proactively challenging incumbent programs based on traditional models. Businesses that achieve this are best placed to control costs, protect their balance sheets and remain competitive in a shifting market.