Life insurers have warned of adverse claims impacts under proposed reforms to the NSW workers’ compensation scheme.

The Council of Australian Life Insurers has urged a state upper house committee reviewing the planned changes to “consider the broader ecosystem impacts that will likely result in increased life insurance premium prices for working Australians.

“In reducing the scope of the cover provided by the NSW scheme, pressure will inevitably shift to other parts of the safety net, primarily to private life insurers through increased claims … and increased pressure on publicly funded health services.”

CALI says changes made to the workers’ compensation system in isolation will not address the pressures that mental health claims are putting on the safety net.

“The underlying factors driving these claims represent a broader public policy challenge, one that requires systemic investment in prevention, early intervention and timely, affordable access to mental health care and support,” the council says in a submission to the committee.

“We anticipate these trends will worsen without significant national action.”

CALI says that, like in the NSW workers’ compensation scheme, mental health claims are now the biggest driver of private insurance premiums.

Private insurers paid more than $2.2 billion in mental health claims last year, up $1 billion on 2019.

Mental illness is the leading cause of total and permanent disability claims, accounting for 31% of all claims paid.

CALI says life insurers are already “starting to see … flow-on effects from similar changes to the Victorian workers’ compensation scheme made early last year.

“It is important to understand the broader context that workers’ compensation schemes operate in, to fully understand the potential impacts of these reforms.”