Briallen Cummings

n alarming number of Australians in their 30s are leaving the workforce permanently because of their mental health, according to new research commissioned by the Council of Australian Life Insurers (CALI).

The Australia’s Mental Health Check Up report by KPMG shows there’s been an unprecedented 732 per cent increase in Total and Permanent Disability (TPD) claims for mental health for 30- to 40-year-olds over the past decade. It is the biggest spike across all age groups.

“The unprecedented number of people leaving the workforce permanently in the prime of their working life has huge implications for them personally, for their loved ones, for our national economy and for our already stretched government support systems,” said CALI CEO Christine Cupitt.

“These are very concerning generational trends that show the frequency and severity of mental ill-health is rising exponentially in our community. No one wants this to be their story,” she said.

The data shows Australians are leaving the workforce for good because of mental ill-health at a younger age than ever before, with the average age of people who claim now 46 years old. The average was around 49 years old a decade ago.

By comparison, the average age for other physical causes of permanent disability claim has remained stable at 49 years of age over the same timeframe.

The research also shows that men are far more likely to be classed as permanently unable to work because of mental ill-health with an almost 60 per cent higher claims rate compared to women.

Life insurers are the largest private sector provider of financial support to people experiencing mental health challenges, second only to the Federal Government.

“We’re helping people every day and will continue to sustainably play our part. Australia’s life insurers are investing more than ever in this kind of data so we can share it with the community and show just how significant the impacts of mental ill-health are on Australians from all walks of life.”

Almost 80 per cent of the overall increase in the number of permanent disability claims in Australia over the past decade is due to the exponential increase in mental health claims. They have gone up by almost 10 per cent every year while the rate for other physical causes of claim has only increased by half a per cent annually.

“At the end of the day, it’s Australian taxpayers who’ll be footing the bill if these trends continue as government safety nets and payments are stretched beyond capacity.”

KPMG Partner and report author Briallen Cummings said: “The significant rise in mental health conditions over the past decade is a real concern for the community and this is reflected in the life insurance data shown in our report.”

“We see not only an increase in the overall proportion of people experiencing mental health conditions, but also an increase in the severity of those conditions,” Ms Cummings said.

Australia’s life insurers fear that this unprecedented rise could have a flow on effect on the affordability of life insurance and the ability of insurers to provide meaningful cover for what is a rapidly growing number of people who are severely incapacitated by mental ill-health.

“This is far bigger than us. While governments are already thinking seriously about Australians’ mental health, we now have further evidence that our community needs more including a stronger and earlier safety net to keep people from falling through the cracks,” Ms Cupitt said.

“This can’t just be left to private industry to manage once people are at the end of the road. No one wants to find themselves severely unwell with no other option than to make the life changing decision to leave the workforce permanently.”

Read the report.

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Briallen Cummings

Australia’s life insurance industry doubled its profits to $1.2bn in the 12 months to 30 June 2023, KPMG’s annual market review reveals.

The cost of premiums for individual-advised disability income life policies rose by 10-12%, consistent with recent years, as insurers tried to staunch losses and boost profitability.

The average costs of combined individual and group disability insurance and TPD increased by just 4% and 3% respectively over the past year after the huge hikes of 34% and 45% seen in the previous two years as a result of the Protecting Your Super (PYS) and Putting Members interest First (PMIF) legislation which took many young people out of default insurance in super. The result was that premiums increased significantly for the mostly older people who remained in the schemes.

Industry premium income rose 4.1% to $17.9bn, although much of this was due to inflation and price increases across the market, some age-related but partly in response to rising claims costs and losses over recent years.

The lapse rates for policies arranged through Independent Financial Advisers rose, but overall the number of lives insured by the market has stabilised after falling for several years.

Briallen Cummings, KPMG Actuarial partner, said; “We can see the impact of the decline in the number of IFAs, with a drop in the amount of people buying death and disability income insurance policies through advisers. The economic pressures on consumers and rise in premium costs has contributed to lapse rates starting to increase. Having said that, the lapse rates in 2022 were still lower than in 2019, which shows a resilience in the industry.

“The figures are mixed, with some areas increasing in profitability and others declining. Profitability on non-risk products surged by $1.3bn from last year although much of this was due to more favourable investment markets. By contrast, profitability on risk products declined by $0.8bn from 2022 and profits on individual disability insurance and lump sum business fell substantially, reflecting increases in claims and the absence of one-off items such as the release of the reserves companies held for COVID-19 claims, which largely did not eventuate.

“But following the sustained period of unprofitability for the industry from 2019-21, we can see the impact of insurers repricing existing business.  We expect to see an ongoing focus on costs and expenses and embedding business efficiencies to further improve profit levels. We also hope to see innovation in the industry as companies look beyond traditional IFA channels for growth. Overall, after some bleak recent years, the industry will be gratified to have had its second year of profits, especially given the uncertain economic backdrop and ongoing changes in the regulatory environment.”

The report also observed that the group life market remains highly concentrated with a few providers. The focus by APRA on consolidating superannuation funds has a similar impact on group insurance and is potentially further adding to the market concentration. This market shrank considerably following the PYS and PMIF regulatory changes but has been stable over the past 2 years.

Detailed findings from the KPMG review:

• Statutory fund profits doubled at $1.2b in FY2023 from $0.6b in FY2022.
• Risk Products reported profits of $0.4b, down from $1.2b in FY2022, but higher than the loss of -$20m observed in FY2021. All product types other than retail lump sum products were profitable after tax, although Group Salary Continuance recorded a loss before tax.
• Non-Risk Products reported profits of $0.7b in FY2023 a recovery from losses of -$0.6bn in FY2022 and similar to profits of $0.6b in FY2021.
• Retail Risk Disability Income was the only product where paid claims as a proportion of premium decreased in FY2023 compared to FY2022. Retail Risk Lump Sum has the lowest ratio of claims to premium of all the benefits, although it experienced the highest level of paid claims as a proportion of premiums received this year compared to the past the last 4 years.
• Group Risk Products paid claims as a proportion of premiums received increased from FY2022, returning for lump sum products to levels similar to FY2018 and FY2019.
• The annual reported profits (noting that year ends differ by company) had the reinsurers reporting losses after tax of $0.3b with 5 of the 7 reinsurers experiencing losses. By contrast direct insurers reported profits of $0.8b with 14 of the 18 insurers reporting profits.
• The overall capital position across the industry remains strong, noting that the published APRA statistics do not include any supervisory adjustments imposed by APRA as part of their IDII sustainability measures (or for any other reason) and therefore the capital position shown is likely substantially stronger than the true underlying capital position.

Read the report.

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