Advocating for Equitable Mental Health Evaluations in Life Insurance

Key observations from the report include:

• Varying Underwriting Practices: A segment of insurers is meeting the Life Insurance Code of Practice by evaluating each applicant's unique circumstances. However, a significant number default to exclusions or outright denials upon disclosure of mental health conditions.
• Reliance on Exclusions: The review found that most underwriting guidelines heavily depend on exclusions, with limited use of alternative risk management strategies such as adjusting premiums or setting benefit limits.
• Data Limitations: A lack of robust data on how mental health disclosures are assessed and the outcomes of these cases hampers insurers' ability to evaluate and improve their practices.

Jan McClelland, Chair of the Life CCC, emphasized the necessity for insurers to assess each customer fairly, based on their individual circumstances. She noted that defaulting to broad exclusions not only restricts access to life insurance but also perpetuates stigma by treating all mental health disclosures similarly.

The report also acknowledges the increasing prevalence of mental health conditions as a leading cause of life insurance claims, which has implications for the sector's sustainability and affordability. Recent data indicates that mental health accounts for nearly one-third of all total and permanent disability (TPD) claims paid, with life insurers in Australia paying out over $2.2 billion in retail claims related to mental health in 2024.

In response to these findings, the 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.

For consumers, these developments underscore the importance of transparency and fairness in the underwriting process. Individuals with mental health histories should be aware of their rights and the industry's obligations to assess applications on a case-by-case basis, ensuring equitable access to life insurance coverage.