Mental health claims top insurance payouts

The Financial Services Council (FSC) has compiled detailed new data that provides deep insights into the underlying causes of total and permanent disability (TPD) claims in Australia.

FSC CEO Sally Loane said the collection of new life insurance data, an initiative by the FSC with KPMG Australia, means the analysis of the causes of TPD claims can be undertaken every six months. This data collection initiative is unsurpassed anywhere else in the world, and for the first time, shows the extent of TPD claims for mental health conditions.

“The data shows throughout 2018, 88 per cent of all TPD claims are paid in the first instance. This moves even higher for TPD claims for mental health conditions, to 91 per cent,” Ms Loane said.

The new FSC/KPMG Australia data reveals that life insurers pay out more TPD claims caused by mental health conditions than for any other cause – accounting for 24.1 per cent of all TPD claims.

A proportion of data collected also contains the types of mental health conditions. Based on this data, the top four types accounted for 63 per cent (two in three) of mental health conditions.

These newly released numbers include:

• 22.9 per cent - reaction to severe stress (for example, PTSD, acute stress reaction)
• 16.8 per cent - depressive episodes (for example, single episodes of depressive symptoms such as lowering of mood, reduction of energy or decrease in activity)
• 13.2 per cent - recurrent depressive disorders (repeated episodes of depressive episodes)
• 10.3 per cent - other anxiety disorders (including panic or anxiety disorder)
• 6.8 per cent - bipolar affective disorder
• 6.6 per cent - schizophrenia
• 0.9 per cent - use of alcohol

After mental health conditions, the next highest amounts paid out are for TPD claims caused by: musculoskeletal issues at 21.6 per cent; accidents at 15.6 per cent; nervous system disorders at 13.9 per cent; and cancer at 8.1 per cent.

According to APRA data, in 2018 life insurers paid out more than $4.4 billion to 26,150 Australians who are not expected to be able to work ever again – providing an average payment of more than $168,000. Of that total, over $337 million was mental health TPD claims.

Hoa Bui, partner in charge, actuarial & financial risk at KPMG Australia, whose team carried out the research, said: “Mental health claims tend to take longer to be reported and assessed than other cause of claims, but the pay-out rate by insurers, at 91 per cent, is nevertheless very high.”

“Nearly half the population will suffer some sort of mental health condition at some point in their lives. KPMG will continue to gather and analyse even more granular data – which will help inform better products and services for life insurers, and policy development, when dealing with mental health,” Ms Bui said.

The FSC’s Ms Loane said TPD claims are significantly more complex to assess than other life insurance claims because they usually require a judgment as to whether or not the person is expected to work ever again.

“Given this, all life insurers are committed to ensuring at peak times of vulnerability, that Australians feel safe and supported, without financial stress,” she said.