Mental Health Cover Debate Enters a More Practical Phase

The response follows the final report from former ASIC deputy chair Peter Kell, which made 85 recommendations across claims handling, mental health, vulnerable customers, First Nations access, funeral insurance and code oversight. CALI has accepted many recommendations, but has placed the most complex areas into priority workstreams running from October 2026 to June 2027. Mental health is one of those workstreams.

The central issue is not whether mental health matters. It is how insurers should balance meaningful protection with sustainable pricing and clear product design. CALI has supported the principle that standard-form disability insurance contracts should not simply exclude all mental health conditions. At the same time, the industry is seeking room for design features such as caps, waiting periods, instalment-style benefits, underwriting terms and, potentially, informed voluntary opt-outs where affordability is a barrier.

That trade-off is highly relevant to employers reviewing group insurance, salary continuance, executive disability cover or buy-sell arrangements. A cheaper policy with narrower mental health protection may look attractive at renewal, but it can create unexpected gaps if employees assume they are covered in the same way for psychological and physical conditions. Conversely, broader coverage may require more disciplined budgeting, clearer eligibility settings and better claims support.

For boards, CFOs and HR leaders, the practical questions are likely to be:

• Are mental health limits, exclusions and waiting periods clearly explained in employee materials?
• Do benefit summaries distinguish death, TPD, trauma and income protection-style cover?
• Are managers and payroll teams clear on what information should be referred to the insurer, trustee or adviser rather than handled internally?
• Could a future code change affect renewal discussions, premium assumptions or workforce wellbeing messaging?

The same thinking applies to business-owned policies, including key person life insurance, where mental health-related disablement or extended absence can have commercial consequences beyond an individual claim. Policy ownership, purpose, tax treatment and claim triggers still need separate consideration.

The important limitation is timing. CALI’s response does not immediately rewrite every product or guarantee any particular outcome for employers or employees. The workstreams will inform the next version of the Code, and regulators are also keeping service quality, vulnerability and consumer outcomes under watch. For now, employers should treat the development as a prompt to test whether their insurance program is understandable, defensible and aligned with how mental health risk is now being discussed across the wider workforce.