AIA Australia and New Zealand CEO Damien Mu has called for a sweeping overhaul of federal legislation to allow life insurers to fund early intervention and treatment for mental health conditions.

Barriers that restrict insurers from funding therapies offered by Medicare or where a hospital or general treatment is involved represent a failure of the healthcare system to keep up with one of the fastest-growing issues in the community, he says.

“The changes we are proposing will add an additional layer of support to Australia’s health system and would work in conjunction with the existing services, not in direct competition,” Mr Mu said at a summit last week.

“In most cases, people who make a claim for a continuous disability policy have already interacted with other schemes such as the support offered by private health insurers, workers’ compensation or Medicare.

“However, in some instances more support is required and this is the gap we are trying to fill.”

A recent parliamentary joint committee inquiry into the life insurance industry should be a catalyst for making the change, he says.

Mental health issues have grown to represent the third-largest area of claims at AIA Australia, behind cancer and musculoskeletal conditions. More than $153 million was paid out for mental health claims last year, with the amount rising by about $25 million each year since 2015.

The parliamentary committee report, released last month, recommended the Government conduct a thorough inquiry or consultation before it goes ahead with reforms to allow life insurers to fund rehabilitation services.

It says the consultation should include impacts on private health insurance or Medicare, and any conflicts of interest that might arise for insurers relating to their customers and the most appropriate care.