Australia’s mental health support system is under strain, and the life insurance industry has a role to play in shoring it up with insurance product redesign, according to a new Actuaries Institute report.
The report, The Mental Health Financial Safety Net: Unifying Australia’s Fragmented Systems, finds that a patchwork of 22 public and private funding supports, including Medicare, workers’ compensation, and life and private health insurance, collectively provide around $18.5bn a year in financial assistance for people experiencing mental ill-health.
Of that total, nearly $4bn comes from insurance, including $2.2bn from life and income protection, $900m from workers’ compensation, and $650m from private health cover.
However, the report warns the system is becoming increasingly unsustainable, with structural gaps and cost-shifting between sectors undermining access, affordability, and equity of care.
“Rising demand is exposing weaknesses across the system, from inconsistent access and affordability to duplication and unmet need,” said lead author and Actuaries Institute member Cindy Lau.
“The safety net is uneven, and too many people with mental ill-health are falling through the cracks.”
TPD insurance
The report also highlights challenges in the design of TPD insurance.
“With around 60% of life insurance payments due to a mental health condition now made as a single lump sum through TPD insurance, there is growing acknowledgement that such payments may not be the best way to support people experiencing serious mental health issues,” states the report.
It notes that products paying significant lump sums can create “perverse incentives” that work against the original design and intent of the cover, since they rely on a person establishing they are permanently unable to work.
Lump sum
The report adds that a lump sum benefit may be less appropriate for mental health conditions than income stream products, which assume an eventual return to work may be achievable.
Elsewhere, the report looks at the challenges faced by people deemed too high-risk to access affordable insurance premiums.
“While these practices reflect risk mitigation strategies and are subject to anti-discrimination laws, they can contribute to a structural pattern of exclusion, particularly for people with fluctuating or episodic conditions,” the report states.
…the current model is fragmented and under pressure…
“The ability to obtain insurance, therefore, does not always equate to accessible financial protection.”
The institute says the fragmented nature of funding and service delivery is eroding the safety net, leaving patients facing significant out-of-pocket expenses, $1.4bn in the year to June 2025, leaving insurers grappling with rising claims linked to mental health conditions.
The report makes eight recommendations, including:
- Adopting a whole-of-system investment approach to improve integration and sustainability
- Implementing a national mental health data strategy
- Providing targeted affordability relief for financially vulnerable groups
- Redesigning insurance products to deliver more cohesive and appropriate support for people experiencing mental ill-health
“Australia has made real progress in recognising mental health as a national priority, but the current model is fragmented and under pressure,” Lau said. “Without reform, the strain on both people and systems – including the insurance sector – will only worsen.”
Actuaries Institute CEO Elayne Grace said addressing these challenges will require coordinated action across government, insurers, and health providers.
“The fragmented coordination of mental health funding and service delivery is failing too many Australians,” Grace said.
“We need a more integrated and sustainable system – one that strengthens support and makes better use of the role insurance can play in financial protection and recovery.”
