Life insurers have stressed the need for “appropriate product design flexibility” to keep mental health cover affordable and accessible as the industry takes its overhaul of its code of practice to the next phase following a review. 

Mental health emerged as the most significant focus area in the review led by former regulator Peter Kell, who released his final report in June after he was appointed last year by the Council of Australian Life Insurers to undertake the task.

The council today released the industry’s response to the reviewer’s 85 recommendations targeting several areas including mental health, support for vulnerable customers, claims handling and code enforceability.

CALI agreed to some mental health recommendations such as developing a plain-English consumer guide on life insurance and mental health but held off on others where it has decided to consider them in an “upcoming priority workstream process” or chosen an alternative industry response. 

The council says it supports the recommendation that the code should prohibit each insurer’s standard form disability insurance contracts from excluding cover for all mental health conditions. 

However, it has decided on an alternative industry response to that recommendation. 

“When it comes to [that recommendation], we agree that no individual insurer’s standard form contract should fully exclude cover for all mental health conditions,” council CEO Christine Cupitt told insuranceNEWS.com.au. 

“What is important, is that this commitment shouldn’t prevent insurers from implementing sustainable design features like caps, waiting periods and instalment payments.

“We should also give customers the choice as to whether they want to remove the mental health cover for affordability reasons. And we need to make sure that that choice is informed and voluntary.

“Of course, as is the case today, insurers will be able to apply non-standard terms and exclusions following individual underwriting.” 

She says life insurers will “always be here for the people who are most deeply affected by mental ill health. But we are moving with the times to make sure that that cover remains accessible and affordable. We will look at the life code to provide life insurers with the appropriate flexibility to design products that are affordable and accessible."

The review is the first since CALI took ownership of the code from the Financial Services Council in 2023. 

CALI supports the majority of the 85 recommendations and says there will be further work and consultation on “more complex” suggestions to wrap up in the first half of next year. 

Consumer groups say the industry’s response to the code recommendations is promising. 

“We are particularly pleased to see CALI agreeing to prohibit each insurer’s standard form disability insurance contracts from excluding cover for all mental health conditions,” Financial Rights Legal Centre policy development principal Drew MacRae said. 

“This has been an important issue for many Australians and we look forward to working with CALI to implement this.”

Click here to read CALI's response to the final report in full.