First published in The Australian Financial Review on 09 July 2025

By Lucy Dean

Insurers say stress, burnout and bullying at work - especially among young people - are among the reasons claimants give for being unable to return to work.

Nearly $1 in every $2 paid out by life insurers is linked to mental health problems in what sector leaders say is a crisis that is about to get worse, as more young people claim they are unable to work from developing severe anxiety, depression and post-traumatic stress disorder.

Life insurance companies paid out a record $2.2 billion in claims related to mental illness in 2024, up from $1.2 billion five years ago.

Stress, burnout and bullying at work are among the leading reasons claimants give for being unable to return to the workforce, along with divorce, financial strife, traumatic experiences and mood disorders such as depression.

^{Christine Cupitt of the Council of Australian Life Insurers, Kent Griffin of Acenda and Damien Mu of AIA have said the life insurance sector is struggling under the weight of surging mental health claims. Bethany Rae}

Kent Griffin, the chief executive of Acenda (formerly MLC Life Insurance) and co-chair of the Council of Australian Life Insurers (CALI) has said he is especially concerned about the rise in young people making TPD claims for mental health reasons.

One study showed permanent disability claims by those in their 30s increased by 732 percent between 2013 and 2022, now making up 36 per cent of all claims. However, people aged 50 and older still account for the majority of claims.
“This unprecedented increase not only highlights the growing burden of mental illness, but also raises concerns about the long-term financial sustainability of life insurance products designed to provide this support,” Griffin said.

Of all $5.5 billion in payouts in 2024, 44 per cent were linked to mental ill health rather than a physical condition or injury, compared to 25 per cent in 2019, according to Council of Australian Life Insurers figures released for the first time.

It’s a 19 per cent rise over five years that has sector leaders warning of a “crisis of sustainability”, the outcome of which will be higher premiums, radical changes to eligibility criteria and the denial of many more claims.

The same problem has created a political storm in NSW, where the government is attempting to narrow the scope of its workers’ compensation scheme. But it has so far been stymied by heavy opposition from the Greens, Unions NSW and the Coalition.

Damien Mu, the chief executive of life insurer AIA, said the situation was alarming.

“Twenty-five per cent of the cause of claim for those under 25 is now mental health, and for those under 40, 30 per cent of the claims we get are for mental health,” he said.

About 80 per cent of retail mental health claims made at AIA are lodged by white-collar workers, Mu noted, with anxiety, stress and PTSD the leading causes of claim.

These are often the results of workplace bullying, burnout, excessive workload, or a business failing, along with personal factors or exposure to traumatic incidents.

The second leading cause for mental health claims are mood disorders, such as depression and bipolar affective disorder.

But Mu said some claims are being lodged with a date of event for an issue that occurred 10 to 15 years ago.

“That makes it very difficult to assess… especially in the area of mental health, which is often the secondary [impact] of another health event. If we look at other insurance industries, there’s usually a timeframe for which a claim needs to be put in.

Mu said one option AIA was considering in an attempt to make the system more sustainable was limiting the time window in which claims could be made – possibly to a maximum of six or seven years after the incident.

“Looking at a six or seven-year timeframe makes sense, and will help reduce the cost and also make people more aware of the need to get claims in quicker,” he said.

TPD policies are paid out as a lump sum when a claimant can no longer work at all, either in their own job or any job, depending on the policy type. They must prove they are totally and permanently disabled.

Payouts are in a lump sum which range from $30,000 into the millions of dollars, depending on the individual policy.

It is difficult to find figures on TPD premiums because they are not collected by a central body. However, financial adviser Trish Gregory of Hayes and Co Insurance Services says annual increases have been in the double digits and as much as 50 per cent, while Griffin said premium increases – which vary greatly depending on the customer’s risk profile and product – have ranged from 5 to 40 per cent in recent years.

The hikes were partly due to the rise in mental health claims, according to CALI chief executive Christine Cupitt.

“While we can’t draw a straight line [between the two], there is a very clear correlation between this increase in TPD claims for mental health, and premium increases,” she said.

The CALI figures cited above are for claims outside of superannuation. This type of coverage is usually arranged through a specialist broker or adviser, but Cupitt said a similar trend is playing out for life insurance claims made for coverage within super.

While TPD cover is paid out in a lump sum, Mu said a new model, which pays out smaller lump sums periodically based on someone’s work capacity, may need to be considered for mental health claims. That’s because mental illness or injury poses a different recovery trajectory to a physical illness.

Mu gave the example of a dentist who lost a hand – they would probably never work in their primary occupation again. But a worker with PTSD may eventually be able to return to their primary occupation with the right support, limiting the need for large TPD pay-outs.

One model, said Mu, would be for a hypothetical customer claiming TPD due to PTSD to receive a smaller lump sum in the first year of claim if they can’t work in their current job. But in the second year of claim, that lump sum will only be paid if the worker can’t work in a related field, and in a third year the money would be paid only if they can’t work at all.

But Mu said early intervention was also essential. He noted AIA had developed programs giving people access to affordable psychology and rewarding people for good habits such as exercise and sleep. It had also developed a scheme which allowed access to subsidised psychologist appointments.

At Acenda, TPD claims related to mental health have increased by 339 per cent since 2020. Mental health is now the leading cause of TPD claim, at around 40 per cent.

In NSW, compensation schemes for state workers have recorded a doubling in the number of psychological injury claims since 2019. Premier Chris Minns wants to raise the threshold for injury required to access compensation, and impose stricter limits on the payment of lifetime benefits.

The plan has been met with strong opposition from unions and the Greens, who claim that some measures – such as lifting the impairment level required to be eligible for long-term payments – make it effectively impossible for people to claim.

Griffin said life insurers are experiencing a similar pinch, caused both by increasing prevalence of mental illness and outdated product design. “Arguably, you’re going to see life insurers doing the same thing,” he added.

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^{Lucy Dean writes about wealth management, personal finance, lifestyle and leisure, based in The Australian Financial Review's Sydney newsroom. Connect with Lucy on Twitter. Email Lucy at l.dean@afr.com.}