Australian businesses face an urgent financial imperative to address mental health and other people risks, with premiums in related lines rising and the pandemic increasing stresses, Mercer Marsh Benefits says.

A survey of human resources personnel and risk managers released today ranks mental health deterioration and workforce exhaustion among the top three people-related business risks.

Mercer Marsh Benefits Pacific Head Sarah Brown says the number one risk, cybersecurity, has been a known issue, but mental health risks to business continuity and ultimately the bottom line are now becoming more widely recognised.

“COVID-19 has put people-related risks firmly on the boardroom agenda,” she said. “While previously thought to be the remit of those in the people and culture function, the mental health of employees has emerged from the pandemic as a risk requiring C-suite attention.”

Mental health claims have been on the rise over the last three years and Ms Brown says while it’s too early for data to demonstrate a correlation between the pandemic and claims, consultants have seen a spike in concerns from clients over the past 18 months amid the outbreak.

“It’s clear that the prolonged impact of the pandemic has exacerbated mental health conditions, with feelings of anxiety and loneliness higher than ever,” Ms Brown said.

“The loss of employment and social interactions, the stress of remote working and home schooling, domestic and international border closures, and the overwhelming sense of uncertainty have taken an enormous toll on the mental health of many Australians.”

The report says costs are rising for people risk protection, including workers’ compensation, disability and healthcare insurance, with typical premium increases of 10-40%, year on year.

Some 45% of enterprises expect increasing health risk protection and wellbeing benefit costs are likely to impact their business in the next three years.

“While businesses must address people risks first and foremost for the health and wellbeing of their people, it has also become an urgent financial imperative,” Ms Brown says. “On top of the unsustainable rise in insurance premiums, there is a growing need to offer wellbeing programs, leading to a cost containment crisis.”

The top barriers to managing risks are a lack of skilled resources to understand and address exposures, budget constraints and confusion over which department is responsible.

Workforce exhaustion was the third-highest risk, but ranked 14th as a priority to address.

“Both HR and risk managers will be grappling to understand root issues and successful interventions over the coming weeks, months and years,” the report says.

Factors at play likely include unaddressed or declining physical and mental health issues, adjustment and grief, job design, supervisory and leadership skills, a hyper-engagement culture, blurred boundaries between work and home, virtual meetings and change fatigue, and caregiving stresses.

Survey findings also highlight that closed borders in Australia have exacerbated the war on talent and the ability of organisations to attract and retain people.

The report, The Five Pillars of People Risk: managing risks for workforce and business resilience, is available here.