The Financial Services Council (FSC) has attacked Canberra for rejecting its push to let life insurers cover the costs of workers’ rehabilitation services.

CEO Sally Loane has accused the Parliamentary Joint Committee on Financial Services of focusing on cultural issues within the industry rather than consumers’ needs.

“We accept there are a range of issues the life insurance industry must address – and we are working to confront these problems – but the FSC believes the committee has not given due consideration to early intervention on its own merit,” Ms Loane said.

Some Australians are not covered by insurance when trying to access workers’ rehabilitation, either because Medicare will not cover them or they have exhausted their benefits. People may also have exceeded benefits caps on workers’ compensation schemes.

The life industry is restricted from covering workers’ rehabilitation costs regardless of whether Medicare or private health insurance benefits are exhausted.

The FSC says modelling shows early intervention reforms could allow up to 10,000 people to benefit from insurance payments, and up to 87 people a year could avoid becoming totally and permanently disabled.

It says the reforms would also reduce the cost of income protection and total and permanent disability claims, making the industry more sustainable.

Under the FSC’s proposal, the industry would cover gap payments for workers’ rehab, or may cover the full cost if cover is unavailable.

The proposals received strong support from the industry.

But in a report, the joint committee voices reservations about the way the proposal originated.

“When a policy proposal is put forward, it has typically gone through a development process and is underpinned by a substantive policy rationale and analysis…

“By contrast, important details of the FSC proposal only emerged as this inquiry unfolded,” it says.

It says no comprehensive cost-benefit analysis of the options for improving rehabilitation services has been provided.

Restricting the proposal to group life would be unlikely to fix the industry’s sustainability issues, which mostly relate to insurance sold through advisers and direct channels, the committee says. The FSC proposal is not supported by a workable business case and does not provide better access to rehabilitation services, it says.

There has been widespread opposition to the FSC proposal.

Several submissions to the committee note it would be inappropriate to expand the industry’s role, given its conduct and culture problems.

Mental health charity Beyondblue says the industry has “grossly inadequate” consumer protections, insufficient self-regulation and poor claims-handling practices.

Its CEO Georgie Harman says it is a paradox that the industry wants to provide treatment and rehabilitation, yet its basic practices harm people’s mental health and discourage them from seeking treatment.

The Australian Council of Trade Unions says the industry is not fit to provide essential social services such as healthcare and workers’ rehabilitation.

The Royal Australian and New Zealand College of Psychiatrists says prolonged contests to gain compensation and the life industry’s use of insurance agents to spy on claimants frequently worsen mental health injuries.

Law firm Maurice Blackburn says insurers’ primary function is profit, meaning it is in their interest to avoid paying claims.