Interim Review Urges Mental Health Coverage Reforms in Life Insurance

The review, led by financial sector expert Peter Kell, involved extensive consultations with community groups, consumer advocates, and regulators. The findings indicate that while some insurers are assessing applicants' individual circumstances, others continue to apply broad exclusions or rigid underwriting rules for those disclosing mental health conditions.

Peter Kell emphasized the importance of insurers adopting fair and evidence-based assessment processes that consider each applicant's unique situation. He noted that the increasing prevalence of mental health conditions makes it imperative for insurers to refine their underwriting practices to ensure they are both fair and sustainable.

Data from the Council of Australian Life Insurers (CALI) reveals that mental health now accounts for nearly one-third of all total and permanent disability (TPD) claims paid. In 2024, Australian life insurers paid out over $2.2 billion in retail claims related to mental health, nearly doubling the figure from five years prior. Income protection claims linked to mental health also remain high, with $887 million paid out in the same year.

The interim report acknowledges the challenges insurers face in balancing the sustainability of their products with the need to provide adequate coverage for mental health conditions. However, it stresses that applying blanket exclusions or rigid underwriting rules is not the solution. Instead, insurers are encouraged to develop more nuanced and individualized assessment processes.

For consumers, this review highlights the importance of understanding the terms and conditions of their life insurance policies, particularly concerning mental health coverage. It also underscores the need for transparency and fairness in the underwriting process, ensuring that individuals with mental health conditions are not unfairly disadvantaged.

The Life Insurance Code Compliance Committee (Life CCC) intends to continue monitoring insurer compliance and may take further action if non-compliance persists. The committee plans to seek updates from insurers on improvements to training, underwriting, and data collection in the coming months.

In conclusion, the interim review serves as a call to action for the life insurance industry to reassess and improve its approach to mental health coverage. By adopting fair and individualized assessment processes, insurers can better support consumers while maintaining the sustainability of their products.