Insurers have been urged to curtail large lump-sum payments for mental health claimants and to monitor employers’ track records in detailing workers’ mental health issues to overcome “systemic” instability, in proposals put forward by the Actuaries Institute.
The proposals are among several recommendations in the Actuaries Institute’s wide-ranging paper on how Australia’s insurance industry deals with mental health conditions, which found failures in regulation and insurer policies in dealing with mental health.
The report, which will be launched today by Lucy Brogden, co-chair of the government’s National Mental Health Commission, comes as the life insurance sector again faces a prudential review after a continued blowout in mental health claims.
After the $44 billion life insurance sector plunged into a sea of red ink in 2014, the Australian Prudential Regulation Authority worked with the industry to shore up the companies.
About $500m was lost over the year in total and permanent disability policies.
Over the year to June 2017, individual disability income insurance policies chalked up a $377m loss, an increase on the prior year’s $360m loss. Official statistics show life insurers have lost a collective $1.5bn over the past four years on retail income protection policies.
“There are no simple solutions,” said Jenny Lyon, president of the Actuaries Institute. Nearly half the adult population experience a mental health issue during their lifetime.
Geoff Atkins and Sue Freeman at Finity Consulting, who prepared the report, said the insurance sector faced “systemic difficulties” in dealing with mental health coverage.
Insufficient data and subjective criteria for diagnosis hampered sustainability, while the claims process was sometimes adversarial, which could lead to “secondary mental harm” for customers.
Among nine proposals put forward by the Actuaries Institute, insurers were encouraged to more regularly update product definitions with a focus on “wellness and recovery”, limit large sum payouts — as income streams with a time limit were better for claimants — and to increase early treatment and recovery.
The institute also said better investment in guidelines for mental health conditions was necessary, suggesting that insurers take into account an employer’s record on mental health claims and “the extent to which their culture reflects mentally healthy workplace standards” in setting premiums.
The life insurance industry has been plagued by significant underinvestment in recent years, as the major banks that acquired the companies failed to properly invest in the businesses. It is now being targeted by the prudential regulator over its out-of-date back-office operations.
Many life insurers are beset with old and obsolete back-office systems that have made dealing with the sector-wide explosion in claims difficult. Large banks such as National Australia Bank, Commonwealth Bank and ANZ have looked to offload their life insurance units.
“Insurers must be financially stable and solvent. This has to be balanced against society’s confidence in the system that legitimate claims are paid,” Mr Atkins said.
Claims relating to mental health made up 19 per cent of all claims reported in 2015, up from about 12 per cent in 2011.