A generation at risk: the mental health claim crisis in young Australians and the need for prevention and early intervention in the life insurance industry

Australia is experiencing a profound escalation in mental health illness, with the sharpest impacts falling on younger generations. This is no longer a marginal wellbeing concern, but a systemic social issue that is threatening quality of life, placing increased pressure on economic productivity, and the long‑term sustainability of life insurance products.

Across Australia, psychological injury claims are increasing at a far faster rate than claims for any other injury or illness. Total and Permanent Disability (TPD) mental‑health claims for people aged 30-40 have increased by approximately 730% over the past decade¹, whilst NSW workers’ compensation losses have approached nearly $2 billion in 2024-25 (these costs being largely driven by psychological injury).²

This rapid growth in long-duration mental-health claims has sparked concern within the life insurance industry about product viability and long-term affordability of this line of insurance. It also highlights a broader societal challenge: the conditions of modern work and life are creating risks that our current systems cannot absorb without major structural change.

Reversing this trajectory will require a decisive commitment to prevention, early intervention and psychologically healthy workplaces. Meaningful progress also depends on a broader shift toward holistic wellbeing, where organisations and individuals each play an active role in supporting and maintaining mental health. For employers, this means reducing psychosocial risks through proactive risk‑management and timely support, while also creating environments that genuinely promote wellbeing. At the same time, individuals need to be equipped with the health literacy and confidence to recognise concerns early and make informed choices about their own mental health and wellbeing.

Behind the surge: the data revealing Australia’s escalating mental health challenges

The last decade has reflected a strong decline in the mental wellbeing of young Australians. The largest increase in mental health claims was recorded in the 30–40-year cohort.³ In addition to this, younger claimants are also exhibiting longer, far more complex and costlier claim trajectories. CALI (Council of Australian Life Insurers) and KPMG’s data collection (2013-2022) shows that temporary disability claimants are now on claim for an average of six years which is one year longer than ten years ago.⁴

In addition to this, the number of insured Australians permanently disabled due to mental ill-health has more than doubled since 2014⁵. This has translated into $12.2 billion being paid by life insurers in financial support, to Australians and their families in the past year, with a growing proportion linked to mental health conditions.⁶

Psychological injury is also dominant among workers’ compensation claims. This pattern is particularly alarming for employers. There is a pressing need for employers to reevaluate current risk management strategies to ensure they are designed to effectively reduce the volume, severity and cost of these claims.

The rapid growth in psychological injury claims - including a 92% increase in accepted psychiatric injury claims between 2021 and 2022 alone⁷ and average claim costs rising from about $146,000 to $288,524 between 2019-2020 and 2024-2025⁸ - has placed significant financial strain on these workers’ compensation schemes. For employers, this translates into rising premium pressure, tighter scrutiny of psychosocial risk controls, and far greater expectations for early intervention and cultural safety.

The complex causes behind rising mental-health claims

There isn’t one single reason that can be attributed to why younger generations are driving this concerning increase. Instead, there are several social, and economic environmental factors that converge to undermine young people’s mental health. These pressures emerge across several domains: the way work is designed and managed, the strength of social and community networks, the broader economic environment, and the accessibility of timely mental-health care. Each of these plays a distinct role in the rising incidence of mental-health conditions among young Australians.

The impacts of poor work design

Studies have shown that workplace environments play an important role in shaping the mental wellbeing of young people. The report NSW Community Wellbeing Insights 2023 - Psychological Factors demonstrates that there is a strong relationship between low levels of personal control and significantly worse mental‑health outcomes. The data shows that people with ‘virtually no or only a small amount of control’ are much more likely to have been diagnosed of having a mental health issue⁹. This is a crucial finding given that a sense of “control” is often influenced by workplace conditions such as workload, clarity, autonomy and leadership. Younger workers tend to be more exposed to role ambiguity, workload stress and bullying, due to the implicit inferiority of their senior counterparts. This makes them more susceptible to mental health injury.

The role of social connection, lifestyle and community factors

Social and community circumstances play a substantial role in shaping young people’s mental health. When individuals feel disconnected from their communities or lack meaningful social ties, they are more likely to experience heightened loneliness, reduced optimism and increased psychological distress¹⁰. Lifestyle behaviours compound these risks. High‑intensity alcohol use and nicotine dependency are consistently associated with poorer mental‑health outcomes. Whilst people who smoke or vape, whether current or former users, show a significantly higher likelihood of having been advised of a mental‑health condition, compared with those who have never used these substances.¹¹

Economic instability and cost-of-living pressures

The data in both CALI’s The State of Australia’s Safety Net, Report Insights and the NSW Community Wellbeing Insights 2023 – Financial Stress, highlights that current economic conditions are a major driver of the disproportionate mental‑health burden faced by young Australians. Insecure work, limited financial control, and weak financial buffers significantly heighten psychological risk. This vulnerability is intensified by the ongoing cost‑of‑living crisis, which continues to erode young people’s financial security and sense of stability.

In the NSW MHC (Mental Health Commission’s) Community Wellbeing Survey - Financial Stress, half of respondents reported that their financial situation had worsened due to events in 2023,¹² underscoring the depth of this strain. For many young people, financial instability also makes entering the housing market increasingly unattainable. This is significant as The NSW Community Wellbeing Survey – Social Circumstances reveals a strong relationship between stable housing and better mental health, indicating that housing insecurity is now a major contributor to psychological distress.¹³

Stigma, shortages and the struggle to access care

Alongside these social and economic pressures, access to appropriate psychological care is emerging as a significant issue. The RGA analysis¹⁴ highlights that many Australians struggle to obtain best‑practice diagnosis and treatment due to the rising cost of services, long wait times and limited availability of qualified practitioners.

While conversations about mental health have progressed significantly over the last decade, substantial stigma still surrounds acknowledging poor mental health, seeking help, and knowing where to find appropriate support.¹⁵ This leads many young individuals to present only once their mental wellbeing has significantly deteriorated. These barriers underscore the critical need for stronger mental‑health literacy and earlier guidance, so individuals access the necessary support before issues become long‑duration claims.

Employers now sit at the centre of the mental health risk equation

The workplace plays a central role in both the development and recovery of mental‑health issues, particularly for younger individuals. As the earlier data shows, the growing volume of psychological claims is frequently linked to everyday workplace behaviours and conditions, rather than acute incidents. Poor communication, unresolved conflict, unclear role expectations and escalating workloads are all psychosocial risk factors that can be addressed through targeted organisational risk‑management strategies. These factors are controllable and modifiable, unlike many external contributors to mental ill‑health, yet they remain common drivers of psychological injury. A persistent challenge in battling poor mental health in this environment is that many employers assume the existence of policies equates to effective protection.

This is simply not the case.

Managing psychological risk in the workplace requires more than written policies; it demands consistent, active implementation and ongoing review. Without this, psychosocial hazards tend to be harboured in informal team cultures where behaviours go unchecked and early warning signs are missed. Evidence from workers’ compensation data shows that a large proportion of psychological injury claims stem from chronic issues such as unmanaged conflict, bullying, poor communication and role ambiguity, rather than single traumatic events¹⁶. NSW scheme actuaries have explicitly warned that the rising number and severity of these mental health claims are driving long‑tail costs and creating significant uncertainty for the system¹⁷.

This evolving liability landscape is prompting a much stricter stance from insurers and reinsurers. Organisations displaying weak psychosocial risk controls or poor cultural indicators will face increasing premiums, reduced underwriter appetite and heightened scrutiny of their management practices. As psychological claims continue to grow, employers are no longer peripheral to the risk equation; they are at its centre.

Rebuilding sustainability through prevention, early intervention, wellbeing and the health benefits of good work

As the volume and severity of mental-health claims continue to rise, both life insurers and employers are facing increasing sustainability pressures. Recalibrating stability within the system will require a coordinated and proactive approach from all stakeholders; an approach that focuses on prevention, early intervention, improved underwriting practices, and the creation of mentally healthy workplaces. The following subsections outline the practical steps that are necessary to address the key factors underpinning this mental health crisis and strengthen long-term resilience, at both an organisational and industry level.

Psychological claims: a sustainability pressure point

Life Code Compliance Committee’s (CCC) recent inquiry found that many insurers still rely on blanket mental‑health exclusions and do not consistently conduct individualised assessments¹⁸.

46 of 48 mental‑health underwriting guidelines still defaulted to exclusions, highlighting the need for fairer, individualised assessment processes¹⁹.

This pressure is also evident in workers’ compensation environments, where secondary psychological injuries - mental‑health conditions that develop following a physical injury - cost five times more than physical injury claims and lead to almost triple the time off work.

At the same time, permanent disability claims for mental ill‑health among people in their 30s are now at record levels,²⁰ further intensifying long‑term sustainability pressures across the life insurance industry.

Collectively, these trends are shaping the future of product design, underwriting and claims management, with insurers increasingly shifting toward severity‑based or partial‑benefit TPD models to maintain protection and affordability²¹. We are experiencing a shift towards more personalised underwriting that aligns with case-specific evidence and the obligations of the Life Insurance Code of Practice²².

Insurers are increasingly adopting data‑driven and AI‑supported underwriting tools, which RGA notes are improving the quality and speed of decision‑making, while reducing bias and unnecessary exclusions²³. This shift represents a critical step toward more equitable access to cover and a more sustainable approach to managing rising mental‑health claim volumes.

 

The Health Benefits of Good Work (HBGW)

The Health Benefits of Good Work (HBGW) initiative, led by the Australasian Faculty of Occupational and Environmental Medicine (AFOEM) and The Royal Australasian College of Physicians (RACP), is built on the evidence‑based principal that good work is inherently good for health²⁴. It emphasises that work providing meaning, stability, autonomy, clear expectations and supportive relationships does not merely reduce harm, it actively promotes mental and physical wellbeing. In this framing, work is not only an environment to be made safer, but a powerful health‑generating setting when designed well.

While employers must ensure their risk‑management strategies effectively prevent long‑duration psychological claims, they must avoid seeing it as purely a risk‑reduction exercise. It should instead be recognised as an opportunity to enhance an individual’s holistic mental wellbeing, delivering benefits that extend across the entire business.

The proof is in the numbers, with the NSW MHC showing that a strong sense of control corelates with significantly lower psychological distress²⁵. Ensuring autonomy in roles and clarity in job specification is therefore essential. Equally, having a supportive team and manager creates confidence and optimism among individuals, which translates into better overall mental health.

Resilience and self-help skill building

Building greater psychological sustainability also requires strengthening people’s own capacity to manage mental health challenges. NSW MHC data shows that individuals who feel confident in supporting their own mental health report significantly lower psychological distress than those with low confidence²⁶.This highlights the value of equipping individuals with the skills and tools that build psychological agency, such as wellbeing literacy, digital self‑help resources and coaching programs, alongside organisational prevention efforts. Empowering individuals early with clear information, tailored support pathways and simple, navigable processes improves outcomes and reduces avoidable deterioration, which ultimately benefits both the individual and broader system sustainability.

Early intervention is critical

Early intervention is absolutely essential.

Once psychological claims move into extended time away from work, they become substantially longer, harder and costlier to resolve, with a much higher likelihood of progressing to long‑tail impairment. Timely contact, early triage, supportive communication and swift workplace adjustments have been shown to drastically shorten duration and improve recovery trajectories. Fast‑tracked occupational rehabilitation plays a decisive role: early, empathetic occupational rehabilitation supports identity, purpose and capability, all of which strengthen the recovery process. This is supported by NSW MHC findings that strong connection and supportive environments correlate with better emotional wellbeing and lower psychological distress²⁷.

Together, these approaches reaffirm that prevention, early intervention and the design of good work are not just wellbeing initiatives; they are essential levers for restoring long‑term sustainability across Australia’s life insurance industry.

Conclusion

Australia’s mental‑health claim crisis, particularly amongst the young, underscores the urgent need for collective action across the country’s employment and insurance systems. Lasting improvement will depend on safer, healthier work environments, stronger prevention and early intervention pathways, and insurance products that better reflect the realities of mental health recovery.

But critically, this challenge cannot be solved in silos. Reducing the volume and severity of psychological claims requires earlier identification of these risks, better access to support, and better translation of data into practical action at the organisational level. When employers are supported to understand emerging psychosocial risks, access evidence‑based interventions early, and align workplace practices with evolving insurer expectations, outcomes improve significantly for both individuals and the system as a whole.

By intervening earlier, strengthening capability and embedding preventative approaches, the trajectory of long-duration psychological claims can be meaningfully altered. This supports better overall recovery, reduces cost volatility and improves the long‑term viability and affordability of life‑insurance products.

Written by Miranda Aitchison | Insights from Elizabeth Rodley

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¹ KPMG & Council of Australian Life Insurers, Australia’s Mental Health Check‑Up: Life Insurance Industry Data Collection 2013–2022 (Sydney: KPMG, 2024) <https://assets.kpmg.com/content/dam/kpmgsites/au/pdf/2024/australias-mental-health-check-up.pdf.coredownload.inline.pdf> (accessed 21 January 2026).

² Insurance Business Australia, “NSW workers’ comp under pressure after more terrible figures”, https://www.insurancebusinessmag.com/au/news/workers-compensation/nsw-workers-comp-under-pressure-after-more-terrible-figures-558470.aspx (accessed 23 February 2026)

³ KPMG & Council of Australian Life Insurers, Australia’s Mental Health Check‑Up: Life Insurance Industry Data Collection 2013–2022 (Sydney: KPMG, 2024) <https://assets.kpmg.com/content/dam/kpmgsites/au/pdf/2024/australias-mental-health-check-up.pdf.coredownload.inline.pdf> (accessed 16 March 2026).

⁴ KPMG & Council of Australian Life Insurers, Australia’s Mental Health Check‑Up: Life Insurance Industry Data Collection 2013–2022 (Sydney: KPMG, 2024) <https://assets.kpmg.com/content/dam/kpmgsites/au/pdf/2024/australias-mental-health-check-up.pdf.coredownload.inline.pdf> (accessed 10 March 2026).

⁵ KPMG & Council of Australian Life Insurers, Australia’s Mental Health Check‑Up: Life Insurance Industry Data Collection 2013–2022 (Sydney: KPMG, 2024) <https://assets.kpmg.com/content/dam/kpmgsites/au/pdf/2024/australias-mental-health-check-up.pdf.coredownload.inline.pdf> (accessed 29 January 2026).

⁶ Council of Australian Life Insurers, CALI Wellbeing One‑Pager, PDF, October 2025, available at: <https://cali.org.au/wp-content/uploads/2025/10/CALI_wellbeing_one-pager_RGB_FA-1.pdf> (accessed 2 February 2026).

⁷ McCullough Robertson Lawyers, WorkSafe: Psychiatric Injury Claims – Top Four Psychological Injury Claims Resources (2025) <https://mccullough.com.au/2025/08/19/worksafe-psychiatric-injury-claims-top-four-psychological-injury-claims-resources/> (accessed 21 January 2026).

⁸ NSCA Foundation, “NSW Workers’ Compensation Reforms: Controversial Changes to Psychological Injury Claims,” <https://www.nscafoundation.org.au/news-item/19526/nsw-workers-compensation-reforms-controversial-changes-to-psychological-injury-claims#:~:text=Treasurer%20Daniel%20Mookhey%20justified%20the,of%2036%25%20over%20three%20years> (accessed 18 February 2026).

⁹ NSW Mental Health Commission, Psychological Factors, PDF, January 2025, <https://www.nswmentalhealthcommission.com.au/sites/default/files/2025-01/Psychological%20Factors.PDF> (accessed 8 February 2026).

¹⁰ NSW Mental Health Commission, Psychological Factors, PDF, January 2025, <https://www.nswmentalhealthcommission.com.au/sites/default/files/2025-01/Psychological%20Factors.PDF> (accessed 8 February 2026).

¹¹ NSW Mental Health Commission, Lifestyle Factors, PDF, January 2025, <https://www.nswmentalhealthcommission.com.au/sites/default/files/2025-01/Lifestyle%20Factors.PDF> (accessed 12 February 2026).

¹² NSW Mental Health Commission, Financial Stress, PDF, January 2025, <https://www.nswmentalhealthcommission.com.au/sites/default/files/2025-01/Financial%20Stress.pdf> (accessed 5 February 2026).

¹³ NSW Mental Health Commission, Social Circumstances, PDF, January 2025, <https://www.nswmentalhealthcommission.com.au/sites/default/files/2025-01/Social%20Circumstances.PDF> (accessed 5 February 2026).

¹⁴ RGA (Reinsurance Group of America), “Under Pressure: Millennials’ Mental Health Disability Claims Soar,” <https://www.rgare.com/knowledge-center/article/under-pressure--millennials--mental-health-disability-claims-soar?utm_source=stakeholder_social&utm_medium=linkedin&utm_campaign=millennial_mental_health_120825#kcAuthors> (accessed 23 February 2026).

¹⁵ RGA (Reinsurance Group of America), “Under Pressure: Millennials’ Mental Health Disability Claims Soar,” <https://www.rgare.com/knowledge-center/article/under-pressure--millennials--mental-health-disability-claims-soar?utm_source=stakeholder_social&utm_medium=linkedin&utm_campaign=millennial_mental_health_120825#kcAuthors> (accessed 23 February 2026).

¹⁶ Safe Work Australia, Psychological Health and Safety in the Workplace, February 2024, <https://data.safeworkaustralia.gov.au/sites/default/files/2024-02/Psychological-health-in-the-workplace_Report_February2024.pdf> (accessed 23 February 2026).

¹⁷ https://www.insurancebusinessmag.com/au/news/workers-compensation/nsw-workers-comp-under-pressure-after-more-terrible-figures-558470.aspx

¹⁸ Life Insurance Code Compliance Committee, The need for fairer treatment of customers who disclose mental health conditions, 16 September 2025, https://lifeccc.org.au/fairer-treatment-for-mental-health-disclosure/ (accessed 23 February 2026).

¹⁹ IFA, Life CCC calls for ‘fairer treatment’ on mental health exclusions, https://www.ifa.com.au/life-ccc-calls-for-fairer-treatment-on-mental-health-exclusions/ (accessed 23 February 2026).

²⁰ KPMG & Council of Australian Life Insurers, Australia’s Mental Health Check‑Up: Life Insurance Industry Data Collection 2013–2022 (Sydney: KPMG, 2024) <https://assets.kpmg.com/content/dam/kpmgsites/au/pdf/2024/australias-mental-health-check-up.pdf.coredownload.inline.pdf> (accessed 21 January 2026).

²¹ RGA, Under Pressure: Millennials’ Mental‑Health Disability Claims Soar, https://www.rgare.com/knowledge-center/article/under-pressure--millennials--mental-health-disability-claims-soar (accessed 23 February 2026).

²² Life Code Compliance Committee, Life Insurance Code of Practice <https://lifeccc.org.au/resources/life-insurance-code-of-practice/> (accessed 21 January 2026).

²³ RGA, Under Pressure: Millennials’ Mental‑Health Disability Claims Soar, https://www.rgare.com/knowledge-center/article/under-pressure--millennials--mental-health-disability-claims-soar (accessed 23 February 2026).

²⁴ Royal Australasian College of Physicians (RACP), Health Benefits of Good Work, https://www.racp.edu.au/policy-and-advocacy/division-faculty-and-chapter-priorities/faculty-of-occupational-environmental-medicine/health-benefits-of-good-work (accessed 23 February 2026).

²⁵ NSW Mental Health Commission, Psychological Factors, PDF, January 2025, <https://www.nswmentalhealthcommission.com.au/sites/default/files/2025-01/Psychological%20Factors.PDF> (accessed 8 February 2026).

²⁶ Mental Health Commission of New South Wales, Community Wellbeing Insights 2023 – Psychological Factors, https://www.nswmentalhealthcommission.com.au/sites/default/files/2025-01/Psychological%20Factors.PDF (accessed 23 February 2026).

²⁷ Mental Health Commission of New South Wales, Community Wellbeing Insights 2023 – Psychological Factors, https://www.nswmentalhealthcommission.com.au/sites/default/files/2025-01/Psychological%20Factors.PDF (accessed 23 February 2026)