Life insurers have adjusted premiums for total and permanent disability (TPD) and income protection products to support the growing cost of mental health claims, according to research house Dexx&r.

MD Mark Kachor says the repricing will continue until the products regain profitability.

“In the short term the price is going to go up – it’s well underway,” Mr Kachor told insuranceNEWS.com.au. “Bear in mind there has been a significant surge in claims related to mental illness.

“Claims excluding mental illness are roughly in line with what the premiums supported. But no one priced the level of claims rising over the last two to three years from mental illness.

“So right now they are repricing, and that will go on until the product category is profitable.”

The Financial Services Council (FSC) has previously warned mental health claims will go up in the months and years ahead, exacerbated by the effects of COVID-19 lockdown measures.

Mental health claims made up the biggest portion of TPD payments last year, at 25% or $649.2 million, according to FSC figures.

Data compiled by Dexx&r shows disability income new business fell an annual 10.8% to a nine-year low of $414 million for the 12 months to June 30.

Disruption in advice channels and cessation of sales of agreed-value disability income benefits from the end of March also had an effect.

New business for individual risk lump sum – TPD, death and trauma benefits – declined 15.5% to a five-year low of $955 million in the past financial year.

The decrease in business reflects the ongoing disruption in the advice distribution channel from dealer group restructuring, adviser exits and the suspension or cessation of sales of direct lump sum products by some life companies.

Group risk business, which is dominated by premiums for default cover linked to super funds, recorded a sharp increase in new sales to $1.2 billion from $492 million.

Total risk in-force premiums for individual and group businesses weakened 7.3% to $15.1 billion.

The five largest life insurance groups by annual in-force premium market share are TAL/Asteron (28%), AIA/CommInsure (18%), Zurich/OnePath (15.2%), AMP (10.3%) and MLC Life (10.2%).