Mental health becomes a financial battleground as insurance premiums soar

Personal risk insurance is adding more pain to the cost of living crisis with premiums for life, total and permanent disability (TPD), and income protection soaring in response to a massive rise in mental health claims on these policies.

Australia’s largest super fund AustralianSuper informed members this month that after its insurance premiums had fallen for three years, premiums for its TPD cover would jump as much as 40 per cent due to rising claim payments over the last year.

Other super funds, such as CareSuper, have also confirmed premiums are rising. The fund said premiums for its most common type of cover are rising by almost 30 per cent after three years of no increase.

Zurich Australia’s retail head, Tim Kane, is among those pointing to mental health claims which are rising both in number and severity.

“We are witnessing a profound increase in the prevalence and severity of mental illness in Australia. This is placing significant pressure on the nation’s mental health protection systems, particularly those that exist downstream, such as insurance,” he said.

“At Zurich, mental health accounts for a quarter of TPD claims, with almost half of all TPD claims also mentioning mental health as an associated struggle or secondary issue to the primary claimed condition.”

The Council of Australian Life Insurers (CALI) said the significant rise in younger Australians making claims is placing pressure on affordability and sustainability across the whole insurance ecosystem and drastic action is needed with mental health claims doubling over five years to $2.4 billion.

“Mental ill-health is now the number one reason why Australians are turning to life insurers to claim when they’re permanently unable to work. The life insurance industry is seeing consistent year-on-year increases in these types of claims,” CALI chief executive Christine Cupitt, said.

“A growing number of people, particularly Australians in the prime of their working life, are becoming permanently unable to work due to their mental health. Australians in their 30s are now more likely than ever before to make a claim for permanent disability due to mental ill-health. The rate of claims for this age group has spiked by more than 700 per cent over the past decade.”

Advisory group HLB Mann Judd backed the claim that mental health expenses are the most significant driver of rising premiums for personal risk insurance products like death and TPD – and its broader impact on insurance premiums.

“In a pooled system, when claim frequency rises, claim durations lengthen or claim sizes increase, insurers must reprice the pool to ensure they can continue meeting obligations to policyholders. That repricing is often experienced as premium increases across cohorts, particularly where claims experience has deteriorated over multiple years,” Mann Judd said in an analysis of insurance premiums earlier this year.

An AustralianSuper spokesperson said the fund’s insurer TAL, had one of the highest proportions of claims paid and the lowest rates of dispute in the superannuation industry for the year to June 2025. “Even with these increases, most members with basic age-based cover will be paying lower insurance premiums than they were in 2022,” the AustralianSuper spokesperson said. A CareSuper spokeperson also pointed to the impact of rising insurance claims.

In its submission to the Life Insurance Code of Practice Review – which covers the code of enforceable standards that life insurers agree to uphold when dealing with customers – CALI argued that insurers should be able to apply blanket mental health exclusions in standard policies.

It says this would help with the affordability and sustainability of these insurance products.

Current life insurance rules state that companies cannot automatically restrict mental health coverage for everyone who buys a standard policy.

Insurers are expected to review each applicant’s individual situation to offer tailored coverage where it can either exclude them from cover, charge a higher premium, cap payments, or introduce a longer waiting period before customers can claim.

CALI wants insurers to be able to do this up-front and not be forced to automatically offer coverage.

Consumer advocacy groups are opposing this.

A submission by the Joint Consumer Groups, representing a diverse range of voices including the Consumer Action Law Centre and UNSW Centre for Social Research in Health, were critical of CALI’s proposed changes

“Mental health-related cover and claims are one of the most pressing consumer issues in life insurance. While insurers have raised concerns about rising mental health-related TPD claims, consumers face widely inconsistent and often harsh policy tests and conditions,” the submission said.

The advocacy groups also argued that customers with existing conditions are already finding it difficult to get coverage.

“There is an extant wealth of evidence in the public sphere demonstrating that people living with mental health conditions, or who have experienced a mental health condition or symptoms of a mental health conditions find it more difficult than others to access many forms of insurance,” these groups said in a joint submission to the Life Insurance Code of Practice Review.

“In September 2025, the Life Insurance Code Compliance Committee (Life CCC) released a report into whether life insurers were meeting the commitments that they had made under their code of practice. The inquiry found that insurers’ underwriting processes too often default to exclusions or denials when applicants disclose a mental health condition,” the Joint Consumer Groups said.

Final recommendations for the Life Insurance Code of Practice Review are due by June 30 this year.

The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.