The state of play in plain English
Personal risk insurance premiums have become one of the most pressing issues in the industry, whether it be in life cover, TPD, trauma, or income protection. No one thing is behind the price hikes because several tectonic plates are leaning on the market at once. Pricing in life insurance is never purely a cost-of-living issue; it’s a reflection of claims experience, distribution capacity, capital pressures, and the investment environment insurers operate in. Right now, each of those dials is turning in the same direction.
This article is intended to keep you abreast of the broader market dynamics. It is general information only and does not take into account individual objectives, financial situations or needs.
Below are the four structural drivers most commonly cited across industry and regulator commentary. In that context, it’s understandable that premiums have been moving upward, and also understandable that many want clarity about what’s driving the change. In recent months, there has been an increased desire for no‑obligation reviews with our insurance experts, simply to better understand how industry-wide repricing dynamics are flowing through and what that means in practical terms for an individual’s arrangements.
1. Mental health claims at historic highs
The sharpest driver is the surge in mental health-related claims, particularly within TPD and income protection. Recent reporting noted that mental health is now the leading cause of TPD claims in parts of the market, with insurers paying billions annually in benefits linked to mental ill health and with a marked increase in claims among younger Australians. These are not small or short-lived payments: TPD benefits are designed to provide meaningful financial relief when a person can no longer work, and income protection claims can involve long durations while a claimant is unable to earn.
In a pooled system, when claim frequency rises, claim durations lengthen, or claim sizes increase, insurers must reprice the pool to ensure they can continue meeting obligations to policyholders. That repricing is often experienced as premium increases across cohorts, particularly where claims experience has deteriorated over multiple years.
2. Decline in distribution due to adviser numbers
The second force is less obvious but heavily felt: there are fewer advisers distributing personal risk insurance. Multiple industry analyses based on ASIC Financial Adviser Register data show the adviser population fell significantly from the late 2010s peak and has stabilised at materially lower levels. When adviser capacity shrinks, the economics of personal risk change. Risk advice is labour‑intensive — fact finding, underwriting support, evidence collection, policy structuring and claims assistance all take time and specialist skill. With fewer advisers in market, the ‘cost to serve’ per policy can rise and access pathways narrow, which can add friction and expense into the broader system.
3. Insurer profitability low (especially in disability lines)
A third driver is sustained profitability pressure in key product lines, particularly individual disability income insurance (IDII), which underpins many income protection offerings. APRA has been explicit about the scale of the problem: it noted industry IDII losses in excess of $3 billion over a five‑year period, even after significant premium increases. APRA also described the competitive dynamics that delayed product redesign (with insurers understandably hesitating to move first if it risked losing market share) alongside higher claims, reserve strengthening and governance and data challenges.
When profitability is weak, insurers respond by tightening underwriting, reshaping product settings, strengthening reserves and, importantly, repricing premiums to align expected claims costs with the capital required to support long‑duration risks. In short: sustainability has to be funded, and premiums are one of the few levers available.
4. Low interest-rate environment reduced investment ‘cushion’
Life insurers don’t just collect premiums and pay claims; they invest reserves and capital. A prolonged low interest-rate environment can compress yields on high-quality fixed income, reducing investment income that historically helped offset underwriting volatility. Global and domestic financial stability commentary has highlighted how low rates challenged traditional life insurer business models, changing the balance between investment return and underwriting margin.
Even when rates move, the transition can be volatile: changes in discount rates and asset/liability valuations can affect reported outcomes, particularly for institutions managing long‑dated promises. When investment income is less reliable as a buffer, the industry tends to lean more heavily on underwriting adequacy, again feeding into premium pressure.
Putting the pieces together
What makes the current premium environment feel persistent is that these drivers compound each other: higher mental health claims lift the cost base; fewer advisers reduce distribution capacity and can increase unit costs; weak profitability forces repricing and redesign; and the investment backdrop reduces the cushion that once absorbed some of the strain. None of this can be associated with a single event. Rather, it’s a system recalibrating to new claims and economic pressures.
Sources
- APRA – Life insurance claims and disputes statistics: https://www.apra.gov.au/life-insurance-claims-and-disputes-statistics
- APRA – Sustainability measures for individual disability income insurance (industry letter): https://www.apra.gov.au/sustainability-measures-for-individual-disability-income-insurance
- APRA – ‘Is IDII back on track?’: https://www.apra.gov.au/news-and-publications/idii-back-on-track
- ABC News – reporting on spike in mental health insurance claims: https://www.abc.net.au/news/2025-07-16/spike-in-mental-health-illness-claims-super-funds-delay-payouts/105531022
- Council of Australian Life Insurers (CALI) – mental ill health and claims pressure: https://cali.org.au/mental-ill-health-is-straining-australias-safety-net/
- FSC (Financial Services Council) – mental health tops TPD claim causes (historical release): https://fsc.org.au/resources/1860-fsc-media-release-mental-health-data-life-insurance/file
Disclaimer
This article was authored by Personal Risk Professionals Pty Ltd. Personal Risk Professionals Pty Ltd is a Corporate Authorised Representative of MBS Advice Licence Pty Ltd AFSL No. 536983. The information in this article is general advice only and does not take into account your personal objectives, financial situation, or needs. Before acting on any information provided, you should consider whether it is appropriate to your circumstances and, where applicable, seek personal financial advice tailored to your situation. You should also ensure you read the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) prior to making any decision about a financial product.
Any information provided to you was purely factual in nature. It has not been taken into account your personal objectives, situation or needs. The information is objectively ascertainable and is not intended to imply any recommendation or opinion about a financial product. This does not constitute financial product advice under the Corporations Act 2001 (Cth). It is recommended that you obtain financial product advice before making any decision on a financial product such as a decision to purchase or invest in a financial product. Please contact us if you would like to obtain financial product advice.