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'Looming crisis': Insurers brace for surge in mental health claims

28th Jul 2020 | Economics

Article By: Charlotte Grieve

The life insurance industry is bracing for a surge in mental health claims amid expectations social isolation and financial hardship caused by the coronavirus pandemic will exacerbate existing conditions or cause new ones.

The head of life insurance at financial services company MLC, Sean McCormack, said dealing with mental health was one of the most significant issues facing the insurance sector as COVID-19 had accelerated an already growing number of claims related to psychological health.

Speaking at the Financial Services Council summit on life insurance, Mr McCormack said he expected to see higher numbers of income protection and total and permanent disability claims as the pandemic fueled anxiety and depression in the community.

"Quite clearly, with the stress and strain, we’re going to see an increase in incidences of primary illness," Mr McCormack said. "The combination of quarantine, of lockdown, of care responsibilities simply increases the risk that those mental health conditions may become chronic."

People already on claims would stay on payments for longer, Mr McCormack said, as reduced work hours combined with a highly competitive labour force created a disincentive for people to go back to work.

"As an industry, we will be wrestling with these dynamics for the foreseeable future," Mr McCormack said.

A study by KPMG and the Financial Services Council released in June found the number of mental health claims had doubled over the past five years, with mental disorders now the third most common cause of disability income claims, ahead of cancer and beind accidents.

Also speaking at the panel, Senator Jane Hume described mental health as a "looming crisis" for the life insurance industry and said the government – including the Treasurer and Health Minister – was alert to the issues and "open-minded" about ideas for reform.

Senator Hume suggested replacing total permanent disability insurance (TPD) lump sum payments with paid treatment plans.

"I did heard somebody say handing someone a lump sum, a significant lump sum, to somebody that potentially has mental health problems could translate to other problems, whether it be gambling or whatever it might be," Senator Hume said. "It’s a little bit like handing the car keys to a 16-year-old and saying here go to it – that’s not going to cure the problem, it’s actually potentially going to make it far worse."

The chief executive of health insuruer AIA, Damien Mu, said the two were not mutually exclusive and defended lump sum payments as being important for people who need to make adjustments to their house or lifestyle after sustaining a permanent disability.

However, he called on the sector to fine tune early intervention measures to ensure premiums did not become unaffordable and design benefits tailored to specific mental health conditions.

"We need to be here for the long term to be able to pay those claims over many, many years," Mr Mu said. "How do we build products to support Australians knowing that one in two Australians in their life will have a mental health issue?"