The Actuaries Institute has urged urgent action to alleviate the growing strain of mental illness on Australia’s financial safety net, which spans private life insurance and state-based workers’ compensation.
The institute cautions that the ability to provide effective support is increasingly challenged by pressures on the “complicated patchwork” of funding sources, service providers and administrative systems.
According to the report, the safety net channels at least $18.5 billion annually into mental health treatment or income support. Of this, nearly $4 billion is delivered through insurance: $2.2 billion from life cover and income protection, $900 million from workers’ compensation, and over $650 million from private health cover.
The report highlights that, despite insurers making progress in funding mental health, long-term sustainability remains uncertain. Claims in the total and permanent disability (TPD) individual insurance line for mental health surged by 433%, from $39 million in 2014 to $208 million in 2022, according to KPMG.
“While it is positive that life insurance benefits are responding to genuine community need, spiralling claim rates threaten affordability and create a complex challenge given the voluntary uptake of individual life insurance,” the report notes. “Insurers continue to grapple with providing affordable mental health coverage that meets community expectations.”
To address these challenges, the institute proposes eight measures, including redesigning insurance products. Recommendations include ensuring benefits are proportionate to financial loss, balancing lump sum and income stream payouts, and promoting a fair, efficient, and modern experience for policyholders.
The Actuaries Institute has warned of mounting pressure on Australia’s financial safety net for mental health, which spans private life insurance and state-based workers’ compensation.
The institute highlighted that at least $18.5 billion annually is directed to mental health treatment or income support, with roughly $4 billion coming from insurance: $2.2 billion from life cover and income protection, $900 million from workers’ compensation, and over $650 million from private health cover.
Despite progress, long-term sustainability is uncertain. Claims in total and permanent disability (TPD) insurance related to mental health surged 433% from 2014 to 2022—from $39 million to $208 million, according to KPMG. The institute warned that rising claim rates could threaten affordability, especially given the voluntary nature of individual life insurance.
To address the issue, the institute proposed eight measures, including redesigning insurance products to:
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Ensure benefits reflect financial loss
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Balance lump sum and income stream payouts
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Provide a fair, efficient, and modern experience for policyholders
The report emphasizes the need for urgent action to secure affordable, effective mental health support within Australia’s insurance and compensation systems.