Client: The Council of Australian Life Insurers
Title: The economic costs of higher mental health illness and lower life insurance coverage
Client’s challenge:
The Council of Australian Life Insurers (CALI) is the peak body for life insurers in Australia. As an advocate for policies that broaden access to suitable life insurance, CALI has been investing in data and research to inform its evidence-based approach to policy advocacy. CALI sought to analyse the current landscape of the Australian life insurance industry, with a specific focus on the economic costs of uninsurance. The project aimed to understand the impact of mental health claims on Income Protection (IP) and Total and Permanent Disability (TPD) products, requiring a quantification of the broader economic burden to inform advocacy.
Australia has experienced a notable increase in mental illness prevalence, with 22 per cent of Australians aged 16–85 reporting a mental disorder in 2022, up from 14 per cent in 2007. This trend is placing pressure on government support systems, including workers' compensation and the National Disability Insurance Scheme (NDIS). Concurrently, superannuation policy changes have reduced group life insurance coverage, particularly for younger individuals, at a time when mental health issues are rising in this demographic. In the life insurance sector, mental health is a leading cause of increased volumes of IP and TPD claims. At the same time, profitability in the sector has declined, premiums have been rising in real terms and both the number of and share of Australians with life insurance coverage has declined. This confluence of factors is contributing to a concern about the long-term sustainability of the industry and the potential flow on impact of more Australians not having life insurance when they need it. There is a desire to understand the broader societal and economic cost of this growing level of uninsurance.
Our solution:
Positive Economics Advisory provided a strategic economic analysis of the Australian life insurance industry. Our work involved a literature review, data analysis, industry consultation and economic modelling of various insurance products. We quantified the incremental economic costs resulting from uninsurance, specifically measuring the impacts of increased government support, healthcare expenditure, and productivity losses. We also conducted stakeholder workshops to gain a deeper understanding of the key issues facing the industry. The findings were consolidated into a comprehensive report outlining the key issues, quantifying the economic costs, and presenting clear policy recommendations. This report provided CALI with the data points needed to support its advocacy and stakeholder engagement.