Life Insurers See Sharp Rise in Mental Health Claims

A sharp increase in mental health claims is prompting life insurers to consider stricter eligibility rules. Many public servants are bypassing state workers' compensation schemes due to fear of workplace stigma or potential backlash. In response, insurers are re-evaluating how claims are managed to control costs, though this may lead to reduced access to mental health support across the wider system.

In the past, workers with psychological injuries typically relied on state-based workers' compensation. However, both insurers and mental health professionals say a growing number of public sector employees are turning to private life insurance instead. This trend is emerging from issues within public compensation systems. Workers often believe that filing a claim could harm their careers or lead to negative treatment in the workplace.

From 2019 to 2024, life insurers reported a significant rise in mental health-related claims, growing from 25% of total claims to 44%. A large share of these claims is coming from public sector workers. In New South Wales, public employees accounted for 46% of psychological injury claims, even though the private sector employs many more people. This imbalance has put pressure on insurers, leading them to consider reducing benefit periods and tightening claim requirements.

Still, making eligibility more strict could simply transfer the burden to other parts of the system. States such as NSW and Victoria are already working to contain the cost of their compensation programs. Mental health advocates warn that tougher rules could reduce early treatment opportunities and make long-term recovery more difficult. Experts believe this may shift financial responsibility without providing a long-term solution to the increasing demand for mental health support.

There is growing support for a more coordinated and preventative approach to mental health. Early intervention is seen as essential to reducing the impact of serious illness. Some insurers are open to taking a larger role in funding early care programs, though any reform effort must focus on improving patient outcomes rather than just lowering expenses. Mental Health Australia and other organisations view the current increase in claims as a symptom of deeper issues, including staff shortages and a lack of accessible community mental health services. Without major investment and system-wide reform, experts warn the cycle of rising claims and unsustainable costs is unlikely to change.

Source: Australian Financial Review, Acenda, Swiss Re