Life insurers have called for legislative reforms to allow the industry to pay for mental health treatments, as new data from the Financial Services Council (FSC) show the biggest portion of total and permanent disability (TPD) payments last year went to claims for the illness.

The push comes after Superannuation, Financial Services and Financial Technology Assistant Minister Jane Hume suggested last week at the FSC summit online that some changes may be needed to address the claims pressure facing the industry.

“In Ms Hume’s opening remarks, she outlined that the Government was willing to consider allowing life insurers to pay for treatment as an early intervention measure, particularly in relation to mental health-related claims,” FSC Senior Policy Manager for Life Insurance Nick Kirwan said.

“If this reform were to be legislated it would allow life insurers to reduce the cost of mental health claims, improving the sustainability of the industry and reducing the cost for life insurance customers.

“Early intervention helps consumers recover from mental health issues, and consumers that recover quicker in turn helps the industry manage its sustainability and affordability – it’s all linked.”

Life insurers paid $1.24 billion last year for mental health claims, comprising of $649.2 million in the TPD category and $594.4 million in income protection (IP) and disability income insurance. With TPD covers, lump sum payments are made if a policyholder is not expected to ever work again due to an illness or injury.

Mental disorders accounted for 25% of $2.58 billion in overall TPD payouts last year, making it the leading claim cause in this product line, FSC said.

About $649.2 million went towards mental health claims, followed by $575.4 million for musculoskeletal (22%), accident $374.2 million (15%), nervous system $311.5 million (12%) and cancer $240.3 million (9%).

The FSC figures, which are compiled by KPMG, show there were 11.1 million TPD in-force covers in the year to December 31 last year and an acceptance rate of 90% from 17,266 claims paid.

In the IP and disability income line, mental health had the third highest share of claims at 14% with payments of $594.4 million.

Depression was the most common cause of overall mental health claims at 16.5%, followed by unspecified anxiety disorders (13.4%), severe stress reactions (11.3%), Alzheimer’s disease (3.6%) and schizophrenia (2.1%).

Ms Hume flagged last week that some changes may be needed to improve the sustainability of TPD cover as the industry braces for a rise in mental health claims because of the pandemic.

“It’s one of those looming crises that we need to be aware of, and it’s not just the industry’s responsibility here,” Ms Hume said.

“I do hear people say handing a significant lump sum to somebody that potentially has health problems…that could translate into other problems, whether it be gambling or whatever.”

She says “perhaps a better way” would be to pay for treatments as part of mental health claims settlement.