Life CCC calls for ‘fairer treatment’ on mental health exclusions

According to the Life CCC’s report, Mental health and life insurance: Compliance with code obligations, exclusions and underwriting practices are limiting coverage for Australians who disclose mental health conditions, falling short of obligations laid out in the code of practice.

According to data in the report, 46 of the 48 mental health underwriting guidelines that were reviewed relied exclusively on mental health exclusions as the alternative to declining cover.

“Insurers appear to be making underwriting decisions without giving sufficient and meaningful consideration to other options for managing risk as required by the code,” the report said.

Life CCC chair Jan McClelland highlighted that this practice dehumanises clients: “Defaulting to exclusions means that customers are not being seen as individuals.

“Insurers need to show that they are genuinely weighing up each applicant’s circumstances, exploring alternatives and using professional advice where appropriate. That is what the code requires.”

According to Life CCC, not only can this approach limit access, but unintentionally reinforces stigmas through treating all mental health disclosures in the same way, undermining trust and creating a perception that people experiencing mental ill health will struggle to secure life insurance.

To further this issue, the report found that “individual circumstances rarely result in tailored outcomes”.

The report stated in their survey of mental health questionnaires provided by insurers that there was “little evidence” of insurers considering the full extent of information of an individual’s circumstances, a requirement under Clause 4.12(b) of the code.

The report outlined two examples of this taking place. One involved an insurer reapplying an exclusion based on a diagnosis of post-natal depression, despite not requesting an update on the individual’s health, and another where an exclusion was applied based on their disclosure of using antidepressants, choosing not to seek any further information.

“These examples suggest that the guidelines, more than the customer’s personal circumstances, influence decisions,” the report said.

“While such an approach may be permissible for underwriting other medical conditions, the code includes specific additional obligations for mental health conditions.”

Furthermore, the report found that insurers lack reliable data on mental health disclosures and their outcomes to meaningfully evaluate their practices and improve.

“Better data is critical to gaining meaningful insights. And these insights can inform practices that deliver better outcomes for customers, not just to meet compliance requirements,” McClelland said.

“With the right data available, insurers can gain a clearer picture of how they’re dealing with mental health disclosures and make decisions that are more considered, transparent and fair.”

While highlighting that many insurers are taking in the full context of mental health disclosures, Life CCC warned of further action for insurers who are non-compliant.

“Our role is to ensure the industry meets the standards it has set for itself through the code,” McClelland said.

She added: “That means decisions that reflect evidence and individual circumstances, and better outcomes for customers.”

Hayes & Co Insurance Services financial adviser Trish Gregory also shared her belief that insurers are overly harsh in their exclusions.

She told ifa in August, “If you’ve ever talked to your doctor and said, ‘Oh, I’m a bit tired, or I was sad, or I took a day off work for a mental health day’, or you’ve seen a psychologist who you’ve had medicine in the past sort of five years, you’re knocked out, you cannot claim on mental health.”

Earlier this year, the Council of Australian Life Insurers (CALI) reported that mental health is now the leading cause of total permanent disability claims, accounting for 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.