KPMG research sounds a warning for ECEC

A joint study conducted by KPMG and the Financial Services Council (FSC) has revealed that Australian life insurance companies are paying out record amounts in disability claims – including more than doubling of claim benefits paid for mental health conditions, signalling a warning for early childhood education and care (ECEC) employers about taking measures to safeguard the mental health and wellbeing of their employees. 

Disability income insurance provides replacement income to policyholders when they are unable to work due to illness or injury, including psychological injury from being exposed to stressful or traumatic events during the course of working life.

The newly released industry-wide analysis covers the five-year period from 2014 to 2018 and involves extensive data collection and examination of 71,000 new and closed claims for insurance policies purchased through financial advisers, from 10 insurers.

FSC CEO Sally Loane said the findings were significant given Australia’s positioning as having the most up-to-date industry claims data “unsurpassed anywhere else in the world” for its granularity and timeliness.

A key aim of the data project, Ms Loane noted, is to “steer the industry towards a sustainable and affordable disability income insurance product. This is, of course, a key goal for the life insurance industry, and even more so, for Australian consumers.” 

The new analysis shows that over the latest period the life industry paid out benefits of $4.9 billion of disability income claims for policies through financial advisers – double the average annual payment level of the preceding five-year period. The data analysis shows that the most common cause for people who made a disability income claim was accidents (38 per cent), musculoskeletal (18 per cent), mental disorders (11 per cent) and cancer (10 per cent).

Much of the increased pay-out levels is however, due to people remaining on claim for longer, rather than a significant increase in numbers of new claims.

KPMG Actuarial Partner Briallen Cummings said the study had shown a significant rise in pay-outs in all categories of claims over the past five years, but the increase in mental health claims was especially notable.

“Total claims benefits for mental health conditions have more than doubled in the past five years. More people are now focusing on their mental well-being, which we see in people taking longer to return to work after a mental health event. Mental health claims tend to take longer to be reported and assessed than other cause of claims, but the pay-out rate by insurers is high and reflects the importance of our community in supporting these individuals in a return to health and work,” Ms Cummings said.

Key findings:

• Accident claims paid in 2018 were 23 percent higher than the equivalent in 2013.

• Musculoskeletal claims paid in 2018 were 7 percent higher than in 2013.

• Claims paid due to mental health in 2018 were 53 percent higher than in 2013 with a 125 percent increase in the incidence of claims amongst men due to mental health.

• Claims paid due to cancer in 2018 were 31 percent higher than in 2013.

The analysis also found that occupation, smoking status and age are key factors in people making claims.

For most causes of claim, the average claimant is back at work within 12 months, whereas claims due to cancer (14 months) and mental health disorders (18 months) see claimants taking more than a year to get back to health and return to the workplace. 

On average only 5 per cent of people who have been on a claim for 5 years or more are expected to return to work within the following year.

To read the release regarding the report, as produced by KPMG, please see here.