Australia’s Mental Health Financial Safety Net

Azuria Partners - Insights - Reinsurance - Australia’s Mental Health Financial Safety Net
  • March 28, 2026
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Australia’s Mental Health Financial Safety Net

Azuria Partners, 27th March 2026 - 7-minute read.

Azuria Partners have summarised the following reports into a brief article, hoping to prompt discussion into the current situation of mental ill-health claims for total and permanent disability (TPD). Additionally, examining the life insurance sector’s role in the financial safety net for mental health support.
  • Actuaries Institute – The Mental Health Financial Safety Net (2025)
  • KPMG – Australia’s Mental Health Check Up (2024)
  • CALI – Annual Report (2025)
Australians are struggling with mental ill-health now more than ever, with the rise especially evident among young adults. The Australian Bureau of Statistics found in their most recent study that 42.9% of Australians have experienced a mental health condition in their lifetime and 38.8% of 16–24-year-olds had a 12-month mental disorder, compared to 21.5% for the total population1. The reasons behind this surge are extensive and somewhat subjective, yet just as important are the systems designed to support young Australians. In 2015, There was around $9 billion in annual funding to mental health programs, funded mostly by government initiatives, with private health insurance contributing roughly 5.2%. However, while rates of mental ill-health have grown sharply, funding sources have not kept pace2

Shifting Funding Dynamics

Over the last decade, total mental health funding has doubled to approximately $18.5 billion in 2024. Yet government spending has not grown proportionally. According to the Actuaries Institute, the insurance sector now contributes nearly $4 billion per year:

  • $2.2 billion from life insurance and income protection (up from $1.24 billion in 2019)
  • $0.9 billion from workers’ compensation
  • $650 million from private health insurance

This means the insurance sector now makes up a significant 20.04% (11.76% from life insurance) of Australia’s mental health financial safety net.

2024 Mental Health Annual Funding

A Growing Strain on the System

The changing dynamics of TPD and personal injury (PI) claims over the past decade are dramatic. The CALI and KPMG report “Australia’s Mental Health Check-Up” found a staggering 732% increase in TPD claims among Australians in their 30s over the past ten years. The report also found that over the last decade the mental health claims for TPD have risen at an average of 8.8% per annum compared to a 0.6% average for all other claim types. Overall, mental health claims accounted for 79.6% of the increase in permanent disability claims. The impact of this is a $169.2M (433.3%) increase in mental health permanent disability claim payouts between 2014 and 2022 and a $226.0M (129.0%) increase in mental health temporary disability claims5. “Australia’s mental health safety net is being challenged significantly, and its long-term viability is at risk,” says lead author and Actuaries Institute member Cindy Lau. “Rising demand is exposing structural weaknesses across the system – from inconsistent access and affordability to duplication, regulatory misalignment, and unmet need. The financial safety net is uneven, with a growing risk that people experiencing mental illhealth will fall through it.” Despite the substantial investment from the insurance sector, significant gaps remain. The Actuaries Institute notes that Australians still paid $1.4 billion out of pocket for mental health services; from psychologists and allied health professionals to GPs and psychiatrists, in the year to June 2025. This underscores that even with an expanded safety net, affordability and access remain out of reach for many4.

The Human and Economic Toll

With around 43% of Australians experiencing a mental health condition in their lifetime, the impacts of this crisis are being deeply felt by life insurers and their customers alike. Australians are leaving the workforce permanently due to mental ill-health at younger ages than ever before, with the average claimant now 46 years old, down from 49 a decade ago3.

White-collar workers are particularly affected, from 2015-2020 they were 32.8% more likely to experience temporary disability due to mental health conditions than blue-collar workers, following covid this decreased to 14.4%. Similarly for permanent disability, over the last decade white collar workers were 42.0% more likely to be permanently disabled due to mental health. With a sharp drop after Covid to 7.4%5. Without change to the structure of this system, it is likely we see further erosion of the financial safety net and more Australian’s who are left without support.

Looking Ahead

While total funding has risen, government support and systemic capacity have failed to match the growing need. Insurers are absorbing a growing share of the burden, but even with billions invested annually, too many Australians still fall through the cracks. To protect the nation’s long-term mental wellbeing and economic stability, meaningful reform is needed.

Some suggested changes put forward by the Actuaries Institute include:

  • Embedding a whole-of-system priority investment approach to identify and implement reforms for integration and sustainability of the safety net.
  • Implementing a national mental health data strategy.
  • Providing more effective affordability relief for at risk and financially vulnerable people.
  • Redesigning insurance products to provide more appropriate and cohesive support.

Additionally, Australia’s mental health support network is highly fragmented and hard to navigate. Without proper reform, consumers may find it difficult to find and access the right support and could struggle switching between available services.

The claim reasons also have a complex spectrum and very long tail end. The top five underlying types of mental health conditions account for only 46.9% of total claims:

  • 16.5% – depression, including single and recurrent episodes
  • 13.4% – unspecified anxiety disorders, for example panic or anxiety attacks
  • 11.3% – reaction to severe stress, for example PTSD
  • 3.6% – Alzheimer’s disease
  • 2.1% – schizophrenia

It is vital that consumers get the treatment they need, and with so many different conditions there are likely earlier measures for some that could be taken to prevent permanent disability. As put by FSC senior policy manager for life insurance, Nick Kirwan: 

“Life insurers would like the option to pay for extra treatment as an early intervention measure. The longer somebody is out of work, the harder it is for them to get back to work.”

There is clearly a strain on the life insurance sector and the question remains: Is the sector ready to rethink how TPD and disability income insurance operate?

Future Action Plan:

In October 2025 CALI released its official action plan for mental health6 , aimed at supporting long-term affordability and industry sustainability. The key highlight here is that over the next 12 months they plan to develop a new assessment framework for mental health claims. CALI is set to create an expert panel to provide technical advice, including input from medical practitioners, legal specialists, rehabilitation and return-to-work experts, life insurance practitioners, and people with lived experience. The objective from this is to see if a new approach looking into contemporary medical evidence and return-to-work practices could provide clarity and better align disability insurance cover

References

  1. National Study of Mental Health and Wellbeing, 2020-2022 | ABS
  2. Expenditure on mental health services 2015-16
  3. CALI – Annual Report
  4. Actuaries Institute – The Mental Health Financial Safety Net
  5. KPMG – Australia’s Mental Health Check Up
  6. CALI – Mental Health Action Plan
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