Tackling mental health discrimination in insurance

We challenged discrimination by Australian insurers and improved how the industry treats people with past or current mental health conditions.

Nearly half of all Australian adults will experience a mental illness in their life. Despite that prevalence, and the evolving understanding of mental health, there has been widespread discrimination by Australian insurers on the basis of past or current mental health conditions.

In partnership with Beyond Blue, Mental Health Australia and SANE Australia, our Mental Health and Insurance Project tackled systemic problems in the way insurers design, price and offer policies and assess claims. These issues affect life insurance and general insurance products such as income protection, total and permanent disability, death and travel insurance.

From 2012 to 2021, we helped approximately 180 clients in relation to insurance decisions connected with their mental health. We represented clients in complaints to state and federal tribunals, ombudsmen and oversight agencies, and helped them resolve issues directly with insurers.

Our casework showed insurers frequently and routinely denied cover unreasonably. Insurers also applied broad or blanket mental health exclusions that were not supported by evidence and did not reflect the risk posed by the applicant to the insurer. Our casework helped clients get fair access to insurance and receive benefits they were entitled to. It also enabled us to advocate for legal and policy changes to improve the insurer practices.

Exposing discriminatory behaviour at the Banking Royal Commission

In 2018, we represented a client at the Banking Royal Commission who had experienced shocking treatment by insurance company TAL.

When applying for income protection insurance, our client was asked if she had ever received advice or treatment for a mental health condition and answered truthfully that she had not. She was later diagnosed with cancer and made a claim on the policy, which TAL initially paid.

TAL later obtained a copy of her medical records and discovered she had seen a psychologist for a number of sessions three and a half years before taking out the policy, following the breakdown of a relationship. TAL cancelled her policy, claiming she had failed to disclose a mental health condition, and repeatedly threatened to recover the benefits it had paid her.

Our client was never told TAL was investigating her or given an opportunity to explain her circumstances. Even after our client’s psychologist confirmed she had not been diagnosed with a mental health condition, TAL refused to change its decision.

The insurer’s conduct was particularly concerning because it was clear from TAL’s own records that our client had been completely honest during the application process, and because there was no connection between our client’s mental health history and cancer diagnosis.

TAL’s decision left our client emotionally and financially vulnerable and fearful of legal action to recover the benefits she had been paid during an extremely difficult period of her life.

The JEC raised TAL’s conduct with the Royal Commission, which investigated our client’s treatment as a case study. This led to the Australian Securities and Investment Commission (ASIC) taking action against the company. The Federal Court found TAL had failed to act with decency and fairness and failed to comply with the duty to act with utmost good faith in handling the claim. The court also found that TAL failed to consider the real financial and emotional impact of its actions. The judgment served as a warning to the insurance industry that courts and regulators are willing to intervene if they fail to treat people fairly.

Improving industry practice

Insurance is a vital service that many rely upon to protect their financial security and wellbeing.

Over years, our work promoted the public interest in ensuring insurance providers base decisions about claims and coverage on robust evidence and contemporary understandings of mental health.

We highlighted the risk that people will be discouraged from seeking essential treatment for common conditions like anxiety and depression, for fear of being locked out of insurance. We advocated for regulation to ensure people who had been diagnosed with a mental illness could take up a policy covering risks not related to their mental illness, rather than face blanket exclusion.

In 2017, several of Australia’s largest insurance providers updated their policies to remove blanket mental health exclusions for travel insurance.

In 2018, the Parliamentary Joint Committee on Corporations and Financial Services recommended a range of initiatives to improve the way the life insurance industry deals with issues relating to mental health. Several recommendations we made to the Committee were adopted.

In its 2019 final report, the Banking Royal Commission made a range of recommendations to improve the regulation of insurance which were subsequently implemented. Some of these, like changing the law allowing insurers to avoid paying out on a policy where a person had failed to disclose something, addressed issues we had raised in our advocacy for years.

In 2020, the Insurance Council of Australia introduced a new General Insurance Code of Conduct, which increased protections for people with a current or past mental health condition. New provisions reflected recommendations we had made over the years, with a move away from blanket mental health exclusions and an end to automatically declining applications for insurance when applicants disclose a mental health condition.

Our 2021 Mental Health Discrimination in Insurance report consolidated our decade of work to improve insurance industry practice. We highlighted successes, including progress in removing blanket mental health exclusions from travel insurance policies and improvements in the approach of general insurers and the Insurance Council of Australia in their attitude to insuring people with mental health conditions.

In 2023, a new Life Insurance Code of Practice came into effect, with commitments from insurers to adopt a fairer approach when assessing applications for insurance where applicants disclose a mental health condition. The improved protections in the new Code followed our sustained advocacy in collaboration with mental health and consumer advocates.

There is still a long way for the industry to go, but we are proud of the inroads we made towards a fairer system.