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Increasing mental health claims may spark payout reforms

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Changes to the way life insurers settle mental health claims may be required as part of efforts to improve the sustainability of income protection products, the industry was told today.

At present claimants receive lump sum payouts, as required by law, but the arrangement may need to change as the industry braces for a likely rise in mental health claims because of the coronavirus pandemic, Superannuation, Financial Services and Financial Technology Assistant Minister Jane Hume said.

Life insurers are not allowed to pay for rehabilitation treatments.

“It’s likely we will see an increase in mental health claims, something that I know the Government has discussed with industry in the past and will continue to do so,” Ms Hume said this morning via webinar at the Financial Services Council’s (FSC) Life Insurance Summit.

“It’s one of those looming crises that we need to be aware of, and it’s not just the industry’s responsibility here.”

She believes the Government needs to support the industry in this, and says Treasurer Josh Frydenberg and Health Minister Greg Hunt are “open-minded” towards suggestions that will improve the industry and support for Australians with mental health conditions.

A recent study by FSC and KPMG found mental health claims recorded the biggest rise of 53% in the 2014-2018 period among the four main categories of causes. The other three causes are accident, cancer and musculoskeletal.

The worsening claims trend for mental health fuelled a doubling of disability income payouts to $4.9 billion in the five years to 2018.

Life insurers have in the past raised the idea of paying for mental health treatments as part of claim settlements, something that Ms Hume says is “perhaps a better way” of approaching the matter.

“I do hear people say handing a significant lump sum to somebody that potentially has health problems…that could translate into other problems, whether it be gambling or whatever,” she said.

“That’s not going to cure a problem. It actually potentially could make it far worse. There are smarter minds than mine that are looking at that right now, particularly those in the industry [who] might have some really interesting ideas on that.

“I know that [Mr Hunt and Mr Frydenberg] are open-minded towards that, and it’s something we should be thinking about as part of building this system for the future, particularly insurance within superannuation.”

The industry has responded cautiously, with AIA CEO Damien Mu saying he doesn’t think lump sum payouts and treatment payments are mutually exclusive.

TAL CEO Brett Clark was similarly cautious.

“It doesn’t appear to me to be a question of ‘or’…It’s a question of ‘and’ providing payments to the customer for the needs that they have as a result of an illness or an injury, and a payment to be able to support them with their health and rehabilitation also.”