The Life Insurance Code Compliance Committee (Life CCC) has released a report highlighting ongoing issues in how Australian life insurers handle applications from customers who disclose mental health conditions.
The committee’s latest review, which focused on compliance with the Life Insurance Code of Practice, found that while some insurers are considering applicants’ individual circumstances, others continue to apply broad exclusions or rigid underwriting rules.
The Life CCC’s inquiry revealed a split in industry practices. Some insurers are meeting the code’s requirements by assessing each applicant’s unique situation.
However, the committee found that a significant number of insurers default to exclusions or outright denials when mental health conditions are disclosed.
Most underwriting guidelines reviewed by the committee relied on exclusions, with limited use of alternative risk management methods, such as adjusting premiums or setting benefit limits.
Jan McClelland, chair of the Life CCC, emphasised that the code requires insurers to evaluate each applicant on an individual basis.
“Mental health conditions touch millions of Australians, and the code is clear: insurers must assess each customer fairly, based on their own circumstances,” she said. “It is pleasing to see some insurers doing this. But others are falling short of their code commitments.”
She added that adhering to the code is mandatory, and insurers relying on broad exclusions need to make changes to align with these standards.
The committee’s findings suggest that defaulting to exclusions may restrict access to life insurance and reinforce stigma by treating all mental health disclosures similarly.
This approach could erode trust in the sector and create the perception that people with a mental health history will struggle to obtain cover.
“Defaulting to exclusions means that customers are not being seen as individuals. Insurers need to show that they are genuinely weighing up each applicant’s circumstances, exploring alternatives, and using professional advice where appropriate. That is what the code requires,” McClelland said.
The Life CCC also identified a lack of robust data on how mental health disclosures are assessed and the outcomes of these cases. This gap makes it difficult for insurers to evaluate their practices or identify areas for improvement.
McClelland highlighted the importance of robust data, noting that accurate information is essential for developing a genuine understanding of mental health-related cases.
“With the right data available, insurers can gain a clearer picture of how they’re dealing with mental health disclosures and make decisions that are more considered, transparent, and fair,” she said.
The report acknowledges that mental health conditions are now a leading cause of life insurance claims, which has implications for the sector’s sustainability and affordability.
Recent data from the Council of Australian Life Insurers (CALI) shows that mental health now accounts for nearly one-third of all total and permanent disability (TPD) claims paid.
In 2024, life insurers in Australia paid out more than $2.2 billion in retail claims related to mental health, nearly double the figure from five years ago. Income protection claims linked to mental health also remain high, with $887 million paid out in the same year.
McClelland acknowledged that disclosure of a mental health condition – whether current or historical – does not guarantee eligibility for coverage.
She stressed, however, that it remains essential for insurers to maintain fair and thoughtful assessment processes.
“The increasing prevalence of mental health conditions only makes it more important for insurers to get underwriting right with an approach that considers individual circumstances properly,” McClelland said.
The Life CCC intends to continue monitoring insurer compliance and may take further action if non-compliance persists.
The committee plans to seek updates from insurers on improvements to training, underwriting, and data collection in the coming months.
“Our role is to ensure the industry meets the standards it has set for itself through the code,” McClelland said. “That means decisions that reflect evidence and individual circumstances, and better outcomes for customers.”
