ASIC urged to review life insurers’ use of blanket exclusions

The Australian Securities and Investments Commission (ASIC) has been urged to investigate those life insurers which use blanket exclusions based on people’s mental health.

A report from Public Interest Advocacy Centre (PIAC) entitled ‘Mental health discrimination in insurance’ found the use of blanket mental health exclusions was inconsistent with insurers’ obligations and may therefore be unlawful.

Problems reported with policies including refusals to offer insurance, offers with a broad mental health exclusion or insurance without a mental health exclusion but with an unreasonably high premium loading.

Other issues included insurers declining applications automatically following disclosure of a mental health condition, assessing applications without obtaining adequate information, failing to consider mental health history and imputing a mental health condition without medical evidence.

“In PIAC’s experience, these issues arise most significantly in the life insurance market. The routine denial of cover or use of extremely broad mental health exclusions is particularly prevalent in relation to income protection and TPD [total and permanent disability] insurance,” the report said.

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“This occurs for people who disclose a history of a diagnosed mental health condition, as well as people who disclose symptoms of a mental health condition but have never been diagnosed.

“The mere disclosure that a person has a mental health condition or a history of a mental health condition commonly leads to an insurer limiting or denying cover, without taking into account factors particular to the person’s condition, including the severity of the condition, the treatment a person is receiving for the condition (indeed, that a person is receiving treatment is often taken by insurers to mean that the condition is severe) and whether or the extent to which the condition impacts on the person’s functioning.”

Virgin Money, Medibank and HCF policies were namechecked by the body as containing standard policy terms which excluded benefits for mental health disorder or mental illnesses while AAMI, ANZ, Suncorp, Insuranceline and RACQ had changed policies to remove the exclusion. Several others had removed it for new customers but it may still have applied to existing customers.

The findings implied that people could be discouraged from seeking early intervention for their mental health conditions if they worried it would impact their insurance policies. This was particularly critical as over 1 million mental health-related services were processed through Medicare in the four weeks to 25 April, 2021. 

“PIAC is concerned that these practices take an approach that penalises and discourages people from seeking preventative, early medical assistance to proactively manage their mental health,” the report said.

“This also undermines government funded campaigns and programs that encourage people to take active steps to stay mentally healthy and to seek assistance to do so.”

It noted that ASIC had “not played an active role” in enforcing discrimination laws against insurers and urged it to conduct a review.

“ASIC should conduct a review to determine whether blanket exclusions for mental health conditions continue to be used in life insurance policies. The Life Insurance Code of Practice should include a commitment not to design and sell products which incorporate a blanket mental health exclusion in the general terms of the policy,” it said.

“ASIC should investigate, as recommended by the Productivity Commission, life insurance industry practices relating to the provision of services to those with mental health conditions. The investigation should consider discrimination in relation to mental health in the underwriting of insurance policies and adopt a model for investigation similar to that used by VEOHRC [the Victorian Equal Opportunity and Human Rights Commission] in its investigation into travel insurance.”