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.”
One last point. Offer insurance products, at a much reduced premium, that exclude mental health claims. Incentive to look after ones mental health and cover for the truly irreversible things that can strike like strokes, neurological disorders, cancer and non car related injuries. For insurance companies to put mental health exclusions into policies for people seeking to increase their coverage, without reducing the premiums is down right theft.
Late stage neo-liberalism. Outsource the risk to the public, reduce services to keep the public healthy, keep the profits. The whole insurance model is built on the premise that you have an empty nest, and earning partner and own a house outright before age 50. If not, then the average worker is stumped with having to ratchet up to levels of IC/TPD/Death insurance with premiums that cost 10-20 percent of income. Of course, with a gamut of exclusions because who has not had to see a counsellor once or twice, or hurt the back or have high blood pressure before aged 50 when slaving away to pay off that damn mortgage and raise the kids as well as pay out the ex in the inevitable divorce.
“Australia is “reaching a tipping point””. Nope. Australia is well past the tipping point, and is now in a mental health driven death spiral for disability insurance.
“Insurers will always be there for the Australians who are most deeply affected by mental ill health.” Nope. If insurers continue to pander to the mental health sector, they won’t be there for anybody.
So, we had the intro of LIF , then we had a Royal Commission , then over the top regulation which led to very experienced ( +plus 15 yrs in advice particularly Risk Insurance Advisers who held exemplary compliance) being thrown under the bus and leaving the profession , then the introduction of a “watered” down IP , all in the name of” sustainability” and then the ever increased trajectory ,by all insurance companies , of increasing base premium rates on policies ( which APRA and ASIC today claim they are closely monitoring ) .
Covid came and again with its enforced political interventions, creating unintended consequences, we have seen financial hardships (with consumers and business), a substantial increase in the cost of living with consumers / business’s struggling financially trying to meet commitments, rent, Loan Repayments and maintain an adequate standard of living.
Meanwhile, Insurance Companies Inflows have sunk, policy lapses have increased and claims on Mental Health TPD and IP have increased.
Now CALII again calls for the ” sustainability of Life Insurance product design to provide this support with regards to TPD “.
The call from within Insurance Companies /CALI for a change of TPD has been a call for change, long before Covid.
So, does CALI really want to support those burdened with Mental Illness or is this again a ‘ watering down ” request for another Insurance Disability Product( eg ditch Own Occ TPD and / or change the TPD definition) in the name of increasing the insurance companies’ profits.
One has to ask, ” Did no Insurance Actuary not see this coming and did not prepare for it?” and whose ” best interest” is this call for a change of Life Insurance Product design really in favour of?”.
I think you have nailed the issue right on the head. Discussion has been going on for years and the only thing still being offered is problems not solutions. The risk market has been decimated quite frankly and what was once a vibrant and dare I say, fun place to be – as well as doing good for Australians, there is no longer any attraction for new advisers let alone customers.
Lack of resilience is one of the issues, more concrete pills required.
Given the regulatory red tape of advising and selling in the Insurance space I have no intention of ever returning to providing insurance to a client.
I guess this means TPD premiums are about to be jacked up again…….which will in due course translate into more policy cancellations.
So, will the financial advisers have to pay out the TPD claims due to product failure under CSLR?
No but if you hold TPD cover you might get a claim from the mental health issues it causes. Don’t forget that the problem with insurance was the upfront commission and LIF solved that so now insurance is all good.