Insurance Signals a Growing Psychosocial Threat
Mental health is no longer just a matter of wellbeing programs or HR policy. It has become a material business risk, with direct implications for workforce productivity, insurance costs, and corporate reputation.
Over the past five years, Australia’s life insurance sector has recorded a sharp escalation in psychological claims. In 2019, payouts for mental health-related total and permanent disability (TPD) claims totalled $1.2 billion. By 2024, that figure had climbed to $2.2 billion. Notably, 44% of all life insurance payouts in 2024 were attributable to mental ill health rather than physical injury or illness.
What makes this trend particularly concerning for business leaders is that the majority of these claims are being made by younger, white-collar professionals, many of whom are in their 30s and early 40s. These are individuals in their prime working years, exiting the workforce entirely due to stress, anxiety, burnout, or trauma-related conditions, some of which are the result of the pandemic.
What’s Driving the Increase?
The drivers are complex and interconnected. Greater public awareness and reduced stigma have led to higher rates of help-seeking and diagnosis, which are broadly positive developments. However, this has coincided with a rise in psychosocial hazards within modern workplaces, chronic overwork, toxic leadership, bullying, vicarious trauma, and job insecurity, especially in knowledge-intensive sectors.
At the same time, Australia’s mental health support infrastructure remains fragmented, costly, and difficult to access. Many workers fall into the so-called “missing middle”. Their conditions are too complex for general services but not severe enough to qualify for schemes like the NDIS. As a result, support is often delayed until symptoms worsen, and a disability claim becomes the only viable option.
Why Executive Teams Should Be Concerned
This is not simply an HR issue. It is a strategic, operational, and financial risk that is growing in scale and complexity.
For employers, the implications are multi-layered:
- Insurance premiums are rising.
- Coverage eligibility is tightening.
- Psychological injury claims are becoming more contested, and more public.
- Critical talent is being lost to avoidable mental health injuries.
Furthermore, regulators are increasingly scrutinising employer responsibilities under psychosocial safety laws. Failing to address known risks could expose organisations to litigation, reputational damage, and regulatory penalties.
And the reputational consequences of a denied mental health claim, particularly when linked to an employee’s working conditions, can be significant, especially in sectors under media and public scrutiny.
What Should Organisations Do Now?
Boards and executive leadership must treat psychosocial risk management as a governance priority.
The first step is recognising that mental health strategy cannot be outsourced to insurers, nor delegated entirely to HR. Preventing psychological harm requires systemic change, revisiting workload expectations, management capability, job design, and culture.
Superficial responses, such as EAPs, mental health apps, or resilience webinars, may help at the margins but won’t address the root causes that drive workers to disengagement, illness, or disability.
Second, organisations must comply with evolving WHS obligations relating to psychosocial risk. Regulators are now enforcing these standards, and the burden of proof lies with employers to demonstrate that reasonable controls are in place.
Third, organisations should engage directly with insurers, industry groups, and government to advocate for sustainable, fit-for-purpose mental health coverage that reflects the realities of today’s workforce.
This is no longer about treating individual symptoms. It is about reshaping workplace environments to prevent harm and support long-term workforce participation.
If mental health remains a secondary issue in your risk register, your organisation is exposed.
The data is clear: a growing number of capable workers are leaving the workforce due to preventable mental health conditions. The financial cost, borne by insurers, governments, and employers, is escalating. The human cost is greater still.
Resilient, high-performing organisations of the next decade will not be defined by short-term profits alone. They will be characterised by leadership that understands how to mitigate psychosocial risk, retain critical talent, and invest in workplace environments where people can thrive.
Mental health is not just a wellbeing priority; it is a business imperative.