The surge in mental health claims moving through group insurance is not another cyclical blip that can be repriced away, according to AIA Australia executive Damien Mu, who says the issue demands disability benefits be redesigned from the ground up and a rebalancing of who is responsible for doing it.

“We’re not assessing against known chronic diseases that we’ve dealt with for the last 200 years,” Mu told Investment Magazine‘s Insurance in Super Summit.

“It is a paradigm shift where we’re now dealing with subjectivity and mental health – a new chronic disease that has always been there but has accelerated – and how that’s interacting with other subjectivity that we measure in TPD.

“In 2013 we had a TPD blip and we all priced it up, and then we moved on. I don’t think we can just do that here.”

Insurers are committed to tackling the problem, Mu said, spending “tens of millions of dollars every year” – but they shouldn’t be complacent. The revolution he wants starts with pulling apart the binary of TPD and income protection in favour of modular disability cover built around what a member actually needs.

A member with an episodic mental health condition should receive income support paired with return-to-work and return-to-health services, he said, while somebody with a clear total impairment shouldn’t “have to go through that pain” of claiming income protection when they need a lump sum immediately.

The design problem is compounded by Australia’s unusually broad disability definitions, Mu said. Only eight to 10 per cent of mental health incidents each year are high severity and high permanence – the territory TPD was traditionally built for – but the 60 to 70 per cent of less severe, less permanent cases are increasingly being captured by those same benefits.

Mu said those members shouldn’t be shut out, warning that tightening eligibility simply shunts people between systems until they land on the taxpayer.

“Excluding people is not dealing with the issue,” he said. “Ultimately, the largest insurer in the country is the government. They just don’t realise it’s coming down later, because people aren’t saving enough in their super because they’re not working.”

Instead, insurers should use digital tools and AI to scale prevention and support services so that scarce clinical resources flow to the people who need them.

But Mu believes the burden of solving all of this has landed in the wrong place, with the “balance of responsibility” shifting too far onto superannuation funds and trustees.

While default cover should remain the safety net funds provide, insurers should take on the accountability of helping members get the cover they need “inside and alongside” super – supported by regulation that doesn’t constrain trustees.

Mu called on the government to amend what he called an unintended consequence of the SIS Act and Life Insurance Act that prevents funds and insurers from paying for early intervention and prevention services, such as psychiatric care, before a claim event.

“The data proves that when we can get to people early, when we can provide support services, we can get people back to work, and ultimately back to not just earning and being productive for themselves and their families, but saving for their super.”