TPD under strain as mental ill health claims skyrocket

New research from the Council of Australian Life Insurers (CALI) has found that mental health is now the leading cause of total and permanent disability (TPD) claims, making up almost one in three claims paid.

Alongside insurers paying out more than $2.2 billion in retail mental health claims in 2024 – almost double the amount paid just five years ago – the latest CALI and KPMG Cause of Claims Results report found mental ill health is also driving one in five income protection claims, with payouts totalling $887 million last year alone.

According to CALI chief executive Christine Cupitt, Australia is “reaching a tipping point”.

“The entire safety net, not just life insurance, is under pressure,” Cupitt said.

“Every year we see a growing number of people, particularly younger Australians, leaving the workforce for good due to mental health conditions.”

In a drastic increase, CALI said the rate of TPD claims for mental health among people in their 30s has increased by 732 per cent over the past decade.

However, for many younger Australians who have “decades of potential working life still ahead”, a lump-sum payout may not provide lasting financial security.

“This should not be the story of young Australians experiencing mental ill health. People are being left with little choice but to label themselves totally and permanently disabled, even where the medical evidence shows there is a chance they could return to work,” Cupitt said.

“It’s a square peg in a round hole and clear evidence that more needs to be done to build a mentally fitter community.

“Insurers will always be there for the Australians who are most deeply affected by mental ill health but we are having to rethink how we better serve customers in the decades ahead.”

Acenda CEO Kent Griffin said there are a several factors leading to the rise in mental illness, ranging from an increase in diagnosis and awareness to expanded definitions and increased expectations of support.

“The result is an escalating demand for support from all parts of the system – including life insurers,” Griffin said.

He also backed CALI’s concerns for the sustainability of life insurance products designed to provide this support given the “unprecedented increase” in claims volume.

“There is no doubt that life insurance must continue to play a role in supporting Australians with mental illness. The value of financial protection during times of mental health crisis – when the ability to work and earn an income is often impaired – cannot be overstated,” Griffin said.

“However, there is a clear trade-off between coverage and affordability. As claims rise, so too do premiums. For life insurance to remain a truly inclusive safety net, coverage must be designed in a way that keeps premiums within reach of the average Australian.”