Mental health conditions a siginficant barrier to insurance

Adviser Ratings’ 2024 Life Insurance Study revealed high rates of exclusions, loadings, and declines for Australians applying for life, total and permanent disability (TPD), and income protection (IP) cover.

Analysing around 300 anonymised policies, **risk specialist advisers at Skye Wealth** explored the life insurance underwriting landscape for clients with mental illness to understand how these conditions impact the outcome of life insurance applications.

According to the overall findings, 38 per cent of those with depression received a standard rate, while 28 per cent received a mental health exclusion, 6 per cent had loadings, and 17 per cent were declined.

Similarly, just 36 per cent of those with anxiety were given a standard rate, 26 per cent had a mental health exclusion, 7 per cent received a loading, and 19 per cent were declined.

Those with a history of self-harm had the highest rates of decline with 42 per cent, and just 22 per cent of such cases were able to access standard rates, 14 per cent had a mental health exclusion in place, and 8 per cent had loadings.

Australia has experienced a rise in attention-deficit/hyperactivity disorder (ADHD) diagnoses, now recognised in 6 to 7 per cent of the population. As such, there has also been a 134 per cent increase in adult ADHD medication prescriptions.

The report said this has resulted in “significant underwriting impacts on those diagnosed, with many insurers not covering income protection”. However, the report also recognised that an ADHD diagnosis is often “preceded by an anxiety or depression diagnosis”.

As such, applicants with diagnosed ADHD were significantly impacted, being almost as likely to be declined cover (30 per cent) as they were to receive a standard rate (33 per cent), while one in five (20 per cent) received a mental health exclusion on their cover.

Those with an eating disorder or post-traumatic stress disorder (PTSD) were also notably impacted, with 27 per cent and 26 per cent of cases being declined, respectively.

While the report recognised that mental health conditions have become increasingly prevalent in Australia due to “better recognition and diagnosis”, it also noted the role other factors have played in this increase.

“Mental health conditions have been on the rise globally, particularly in the younger population, with technology addictions, substance abuse and social isolation becoming major health concerns,” the report said.

Looking at the results by the type of cover, life insurance applicants with a history of self-harm (46 per cent), an eating disorder (27 per cent), and ADHD (26 per cent) were the most likely to be declined and loadings were most prevalent for those with PTSD (41 per cent), stress (30 per cent), and eating disorders (27 per cent).

An analysis of TPD cover revealed that mental health exclusions were being imposed on at least half of those with a history of self-harm (57 per cent), depression (54 per cent), PTSD (53 per cent), anxiety (50 per cent), and stress (50 per cent). Furthermore, 54 per cent of those with ADHD were declined TPD cover, followed by anxiety (34 per cent) and self-harm history (31 per cent).

IP insurance had the highest instances of declines among those with pre-existing mental health conditions, with almost three-quarters (73 per cent) of those with ADHD being declined cover, while significant portions of those with an eating disorder (50 per cent), anxiety (44 per cent), PTSD (42 per cent), depression (38 per cent), stress (38 per cent), and grief (33 per cent) were similarly denied.

Delivering better outcomes for clients

Given the significant challenges applicants with these conditions face when seeking cover, the report suggested a number of ways insurers can adapt their processes to improve outcomes.

One method was utilising AI in underwriting to analyse datasets in order to identify trends and predict risks more accurately, potentially leading to more “personalised and fair” underwriting processes.

It further recognised the benefits of global data sharing to expand datasets and insights, helping to improve accuracy and outcomes. Data sharing between healthcare providers and insurers was also encouraged to help better inform underwriting decisions, while ensuring privacy and ethical considerations are prioritised to protect client confidentiality.

Finally, the report suggested insurers look at how coverage options can be made more flexible to accommodate mental health conditions, prioritising a balanced approach and developing products that offer more inclusive coverage for those with pre-existing conditions

“How insurers treat mental health conditions in their policies is a significant concern for clients, impacting their perceptions and the affordability of insurance,” the report said.

“Tailored policies that consider the unique circumstances of individuals with these conditions can differentiate insurers in the market.

“By balancing individual client narratives with industry dynamics, insurers can position themselves as valuable partners to advisers and grow their business.”