A near-doubling of insurance claims paid out for mental health-related issues compared to five years ago underscores what the Council of Australian Life Insurers (CALI) calls the urgent need to address an underlying health epidemic sweeping the nation.
Given that insurers paid out more than $2.2 billion in retail mental health claims in 2024 – almost double the amount paid just five years ago - CALI is also questioning the sustainability of insurance products to support Australians with mental health issues.
CALI argues that the nation’s financial safety net is being pushed to its limits, with more Australians leaving work permanently due to mental ill health than ever before.
Mental ill health has become the number one cause of total and permanent disability (TPD) claims, now accounting for almost one in three (31%) claims paid; and one in five income protection claims is due to mental health - with insurers paying out more than $887 million in 2024 alone.
Tipping point
According to CALI CEO Christine Cupitt, the entire safety net, not just life insurance, is under pressure.
Cupitt points to the growing number of people, particularly younger Australians, leaving the workforce every year permanently due to mental health conditions.
The rate of TPD claims for mental health among people in their 30s has increased by a whopping 732% over the past decade.
However, Cupitt doesn’t believe the lump sum payout is keeping pace and may not provide lasting financial security, especially for younger Australians with decades of potential working life still ahead of them.
“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,” said Cupitt.
“It’s a square peg in a round hole and clear evidence that more needs to be done to build a mentally fitter community.”
While insurers will always be there for Australians most deeply affected by mental ill health, Cupitt is calling for a rethink of how the sector can better serve customers in the decades ahead.
18-24 year olds
Echoing similar sentiments to CALI, a recently released KPMG report, Australia’s Mental Health Check Up confirmed that the fastest increase in TPD claims due to mental health issues was among young people, while temporary disability claims tend to occur within an older cohort.
While the report notes that the use of mental health services in the past decade has increased across all age groups over the age of five, the greatest increase was among 18-to-24-year-olds at 60%, followed by those aged 25 to 34, at 45%.
This data highlights an about-face dilemma confronting insurers' business models; typically the younger cohort has subsidised older insured individuals who have until now been more likely to claim.
Highlights from KPMG findings include:
- Unprecedented number of people in their 30s and 40s are leaving the workforce permanently.
- A doubling of insured Australians permanently disabled due to a mental health condition since 2014.
- Those in their 30s are now more likely to claim for permanent disability due to mental health challenges than ever before – with rate of claims up over 700% in the last decade.
- Average age of those leave the workforce permanently due to mental ill-health is now 46.
- Around 80% of the total increase in permanent disability claims over the past decade is now attributed to mental health conditions.
A 2020 Productivity Commission report into mental health noted that all Australians would benefit from an improved mental health system.
However, five years on a recommended review of the regulations that prevent private health insurers from funding community-based mental healthcare activities, and permit life insurers to fund mental health treatments for their insurance clients on a discretionary basis is yet to be implemented.
