The Life Insurance Code Compliance Committee (Life CCC) has called out Australian life insurers for falling short on fair treatment of customers who disclose mental health conditions. A new report from the committee warns that inconsistent underwriting practices risk undermining public trust, limiting access to cover, and reinforcing stigma at a time when mental illness is one of the country’s leading health challenges.
At the heart of the issue is how insurers respond when applicants reveal a past or current mental health condition. Some companies now take a tailored approach, weighing up each case individually, as the industry’s Code of Practice requires. Others still rely on rigid rules, default exclusions, or outright rejections—an approach the committee says is no longer acceptable.
A Divided Industry on Mental Health Assessments
The Life CCC review revealed stark differences in how insurers handle disclosures. On one side are providers making an effort to assess people on their individual merits. They consider factors such as diagnosis type, treatment history, and current stability.
On the other side are insurers applying blanket exclusions for mental health, regardless of the applicant’s circumstances. These broad restrictions not only deny cover but also send the message that any history of mental illness automatically makes someone uninsurable.
Jan McClelland, Chair of the Life CCC, stressed that such practices run against the spirit and letter of the Code.
“Mental health conditions touch millions of Australians, and the code is clear: insurers must assess each customer fairly, based on their own circumstances,” she said. “It is pleasing to see some insurers doing this. But others are falling short of their code commitments.”
Consequences for Access and Trust
The committee warns that these practices risk creating long-term damage to both customers and the industry itself.
By defaulting to exclusions, insurers may deny access to people who could reasonably manage cover if assessed individually. This not only undermines consumer trust but also fuels stigma by suggesting that mental health is a universal risk marker.
“Defaulting to exclusions means that customers are not being seen as individuals,” McClelland said. “Insurers need to show that they are genuinely weighing up each applicant’s circumstances, exploring alternatives, and using professional advice where appropriate.”
The perception that mental health automatically disqualifies applicants can also deter people from seeking cover in the first place, shrinking the insurance pool and reducing the industry’s long-term sustainability.
Data Gaps Holding Back Reform
Another challenge identified in the review is the lack of reliable, industry-wide data on mental health disclosures. Without robust data, insurers struggle to evaluate underwriting decisions, track fairness, or design new approaches.
McClelland underlined this as a priority:
“With the right data available, insurers can gain a clearer picture of how they’re dealing with mental health disclosures and make decisions that are more considered, transparent, and fair.”
Data gaps make it difficult to know how many applications are declined, how often exclusions are applied, and what proportion of applicants could have been offered alternative terms, such as adjusted premiums or capped benefits.
Mental Health and Claim Trends
The stakes are high because mental illness is now one of the largest drivers of claims across the life insurance sector.
According to the Council of Australian Life Insurers (CALI), mental health now accounts for almost one in three total and permanent disability (TPD) claims. In 2024 alone, insurers paid out more than $2.2 billion in retail claims linked to mental health. That figure is nearly double the payout recorded just five years earlier.
Income protection claims are also significant. In 2024, $887 million was paid to policyholders for mental health-related conditions. The upward trend reflects both rising incidence and greater recognition of conditions such as depression, anxiety, and post-traumatic stress disorder.
These payouts demonstrate the scale of financial protection life insurance provides. But they also highlight the industry’s balancing act—managing growing claim volumes while keeping products accessible and affordable.
Fairness vs. Sustainability
Insurers argue that rising claim rates make underwriting essential to protect the long-term viability of products. The industry maintains that fair assessment does not mean automatic acceptance. Some conditions, depending on severity and duration, will inevitably result in higher premiums or exclusions.
The committee acknowledges this reality but insists insurers must not take shortcuts. The key, it says, is to consider individual risk rather than imposing blanket rules.
“The increasing prevalence of mental health conditions only makes it more important for insurers to get underwriting right with an approach that considers individual circumstances properly,” McClelland said.
Striking a balance between fairness and sustainability will be critical. If insurers err too far on the side of caution, they risk losing public trust and regulatory support. If they underprice risk, they jeopardize financial stability.
The Regulatory Push for Change
The Life CCC review is more than a warning; it signals a new phase of oversight. The committee has committed to closer monitoring of compliance with the Life Insurance Code of Practice, with a focus on underwriting, training, and data collection.
Insurers that fail to improve may face escalating consequences, ranging from public reporting to possible regulatory intervention. The committee is expected to seek updates from insurers in the coming months on changes they are making in response to the report.
“Our role is to ensure the industry meets the standards it has set for itself through the code,” McClelland said. “That means decisions that reflect evidence and individual circumstances, and better outcomes for customers.”
Industry Response and Future Pathways
Some insurers have already begun to adapt. A few providers now use tiered approaches, offering modified cover options rather than full exclusions. These include limited benefit periods, higher deductibles, or capped payout amounts. While not perfect, they represent a step toward individualized assessments.
Others have invested in training underwriters to better understand the diversity of mental health conditions. This is coupled with advice from medical professionals, helping insurers separate low-risk cases from high-risk ones.
Technology may also play a role. Advances in data analytics and digital health records could allow for more precise assessments while protecting privacy. If done properly, these innovations could improve fairness while maintaining financial safeguards.
What Policyholders Should Know
For Australians applying for life insurance, the report offers key takeaways.
- Disclose accurately: Applicants should continue to provide full and honest information about their mental health history. Non-disclosure risks invalidating claims.
- Ask for clarity: Consumers can request detailed explanations of underwriting decisions, including reasons for exclusions or premium adjustments.
- Know the code: The Life Insurance Code of Practice requires fair and individual assessment. Policyholders can raise concerns if they believe their application has been handled unfairly.
- Seek advice: Financial advisers, consumer advocacy groups, and mental health organizations can provide guidance for navigating applications and appeals.
By understanding their rights, applicants can hold insurers accountable to the standards the industry has committed to.
The Bigger Picture
The debate over mental health disclosures reflects a broader societal shift. Mental illness is no longer hidden or ignored; it is one of the most pressing health issues of our time. Yet stigma remains, and insurance practices can either help reduce it or make it worse.
The committee’s message is clear: insurers cannot afford to rely on outdated, one-size-fits-all approaches. Fairer underwriting practices are not only an ethical obligation but a commercial necessity in an increasingly health-conscious market.
With billions of dollars in claims at stake and the trust of millions of Australians on the line, the industry faces a decisive moment. Insurers that adapt will strengthen their reputation and customer loyalty. Those that resist may face both regulatory pressure and reputational damage.
Looking Ahead
The coming year will test whether the sector is willing to make meaningful changes. Improved data collection, updated underwriting guidelines, and greater transparency will be critical steps. The Life CCC’s continued oversight ensures this will remain a priority.
For policyholders, the report is a reminder that the industry is still evolving. Navigating applications may remain challenging, but there is growing momentum toward fairer treatment.
As mental health continues to shape the national conversation, life insurers will need to show they are part of the solution rather than part of the problem. The future of both access and trust may depend on it.
