Life Code Review Interim Report: mental health, sustainability and vulnerability in life insurance

The Life Code of Practice review comes at a critical point for the life insurance industry.

Mental health claims continue to increase, sustainability pressures remain front of mind and expectations around customer support are evolving. The Life Code Review Interim Report raises important questions about how the Code should respond, particularly in relation to mental health coverage and the treatment of vulnerable customers.

Partner Jess Thurtell shares her views on what the Interim Report signals for life insurers and where the next phase of the review should focus.

Mental health and blanket exclusions

A crucial part of the Interim Report deals with the Life Insurance Industry’s response to mental health, and particularly the existing Code provisions on blanket mental health exclusions.

This issue goes to the heart of how the Code balances consumer protection with the long-term sustainability of life insurance products.

There is well known confusion as to what the existing Code provisions on blanket mental health exclusions require. The aim of the Code review should be to both clarify the intent of those provisions, whilst also adapting to the ever changing and growing mental health impact on the sustainability of life insurance, particularly TPD cover.

Clear guidance will be critical if insurers are to respond consistently while managing the growing prevalence and complexity of mental health related claims.

In the Interim Report, Peter Kell (the Reviewer) considers that the current Code is appropriately understood as representing a commitment by insurers to go beyond the minimum legal requirement of the Disability Discrimination Act 1992 (Cth) (DDA) and not include blanket exclusions in new standard form policies. The Reviewer goes on to invite views on what requirements the Code should prescribe in future on this issue, including how the Code could remain consistent with the DDA if the prohibition on blanket mental health exclusions was removed and design features in insurance policies that limit cover for mental health were permitted.

This invitation highlights the opportunity for insurers to engage in a more considered discussion about policy design, consumer choice and regulatory alignment.

It is unclear how the DDA could be relevant to standard form policies which, by their very nature, do not discriminate against individuals but are rather applied across the entire insured pool.

For instance, insurers could offer different levels of cover (akin to private health insurance policies), some with mental health coverage, and others without such coverage. Each policy would then be priced accordingly, and consumers could make an informed decision as to which level of cover adequately suits their needs and risk tolerance. Alternatively, a middle ground could be adopted with insurers offering cover with different terms applicable to mental health claims such as benefit caps and different waiting periods.

This doesn’t refuse coverage to a person on the grounds of that person’s disability but gives consumers a genuine choice as to what level of cover they wish to hold, before they have such a disability.

Approached this way, the focus shifts away from exclusion and towards transparency and informed decision making at the point of purchase. It also promotes innovation of the TPD product.

Rethinking TPD definitions and cover design

Similarly, insurers could also offer alternative levels of cover which include and exclude reference to the “education, training or experience” requirement often present in TPD definitions.

This is particularly relevant in the context of mental health related claims.

Mental health is often affecting young people who might not yet have much education, training or experience, or whose education, training and experience is limited to one particular field.

A more premium coverage option could include the “ETE” requirement, enabling consumers to meet the TPD definition even where they are able to work in a different field outside their current area of expertise.

A more economical level of cover could exclude the ETE requirement, entitling consumers to coverage where they are not able to work at all, in any field, regardless of their ETE.

These cover options could address sustainability, pricing and mental health coverage issues.

Offering clearly differentiated options allows insurers to better manage risk while giving consumers meaningful choice about the cover they hold.

Vulnerable customers in a life insurance context

The Interim Report also discusses insurer identification and treatment of vulnerable customers, and which customers are to be considered “vulnerable”.

This is an area where the life insurance context differs significantly from banking and general insurance.

The list of risk factors and potential vulnerabilities, and insurers’ understanding of them, are growing. Whilst including a list of risk factors and vulnerable customers might be appropriate in the context of Banking and General Insurance, for Life Insurance, at claim time (which is often when insurers have the most dealings with their customers) it is arguable that most, if not all, customers would fall into a category of vulnerability.

The very intent of a life insurance policy is to cover a customer when they are at their most vulnerable.

It may therefore be appropriate in a life insurance context to start from the premise that all customers have some level of vulnerability and for life insurers to simply be mindful of what type of support would best suit each customer.

Rather than focusing on rigid classifications, this approach encourages a more simplified, flexible and empathetic response to claims handling and customer support.

What this means for life insurers

The Interim Report creates an opportunity for the industry to reassess how mental health, policy design and vulnerability are addressed under the Code. For life insurers, the challenge will be to balance sustainability and pricing with fairness, clarity and consumer choice, while continuing to support customers at the moments that matter most.

We’re working closely with life insurers as they consider the implications of the Interim Report and prepare for the next stage of the Code review. If you’d like to discuss what this means for your products, claims frameworks or Code compliance, we’re here to help you navigate the path ahead with confidence.