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Mental health now the leading cause of TPD insurance claims
By Matthew Wai Published on July 11, 2025
More Australians are leaving work permanently due to mental ill health than ever before with insurers paying out over $2.2 billion in mental health claims last year, according to new data from the Council of Australian Life Insurers (CALI).
CALI said mental health is now the leading cause of total and permanent disability (TPD) claims, making up almost one in three claims paid.
The $2.2 billion paid last year in retail mental health claims nearly doubles the amount recorded five years ago.
Further, mental ill health is also driving one in five income protection claims, with payouts totalling $887 million in 2024, CALI said.
The trend is especially significant among younger people, with TPD claims for mental health increasing by 732% for those in their 30s over the past decade.
CALI chief executive Christine Cupitt says Australia's financial safety net, not just life insurance, is reaching a "tipping point".
"Every year we see a growing number of people, particularly younger Australians, leaving the workforce for good due to mental health conditions," Cupitt says.
"This should not be the story of young Australians experiencing mental ill-health. People are being left with little choice but to label themselves totally and permanently disabled, even where the medical evidence shows there is a chance they could return to work."
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Cupitt says this was even more worrying considering a lump sum payout may not provide lasting financial security for those that are supposed to have "decades of potential working life still ahead".
"It's a square peg in a round hole and clear evidence that more needs to be done to build a mentally fitter community," Cupitt says.
"Insurers will always be there for the Australians who are most deeply affected by mental ill health but we are having to rethink how we better serve customers in the decades ahead."
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This article first appeared on Financial Standard
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The industry's response risks causing real harm to consumers. It feels like a knee-jerk reaction to suddenly plug every hole, when the growing number of holes have been clearly flagged and identified (to deaf ears) for over a decade. Some of the actions I'm seeing, and have been personally affected by, verge on unlawful, which creates new risks for the industry in itself.The writing has been on the wall for a long time. Mental health DI claims have sat as high as 25% for years. When customers are allowed to hold both long-term DI and large TPD benefits, overlap and windfall scenarios inevitably emerge, encouraging claims. Several contributing factors have led the industry to this point:1. Real growth in mental illness. Fundamentally, governments and corporations bear direct responsibility for this2. Expansion of a pro-claimant and increasingly litigious environment, fostering social narratives of victimhood and entitlement3. Growth of plaintiff law firms and their involvement in non-disputed claims4. The Life Code of Practice, while well-intentioned, reinforces points 2 and 3 and imposes simplistic processing rules and timeframes on complex, high-risk decisions5. Poor claims practices driven by:a. Under-resourced claims teamsb. Under-skilled claims teamsc. Fear of media and legal implications/costs of defending claimsd. Life Code of Practice obligations overriding prudent assessment and claims managemente. Increased payment of small value claims to "get rid of them"f. Normalisation of TPD claim acceptance for mental health, often without sufficient scrutinyg. Efficiency and innovation without, or at the expense of, foundational claims practices6. Unsustainable Product features designed without regard to insurability principles:a. Own Occupation TPD coverb. Reduction of TPD waiting periods from 6 months to 3 months forcing premature assessments of permanent incapacity, often before genuine mental health patients have received adequate care or treatmentc. Waiting period waiver featuresd. Overly complicated product filled with noisee. Occupational definitions reliant on medical opinions, generally accepted from doctors unqualified to assess occupational disablementf. Vague definitions open to unfavourable court interpretation, with limited industry responseg. Generous DI definitions that discourage return to work7. Generous underwriting/Product guidelines that have not adequately accounted for over-insurance risks from combined LTIP and TPD cover8. TPD antiselection is evident with average sum insured for claims lodged within 12 months significantly higher, when compared to claims lodged after 12 monthsThese trends are unsustainable and require thoughtful and disciplined industry response, to restore balance and protect both consumers and insurers. Unfortunately, media narratives and commentary from industry bodies often gain traction at senior levels, and those levels tend to drive reactive measures.