Tighter eligibility rules in Australia’s workers' compensation systems may be redirecting mental health claims into superannuation funds, according to new University of Melbourne modelling that estimates a 19% rise in income protection (IP) lodgments over the next decade if the current legislative trajectory continues nationally. The research was commissioned by claims firm EML and published June 1 as part of a white paper titled The Complexity Premium: The Cross-Scheme Pressures Impacting Claims in Super.
Victoria’s Scheme Modernisation Act 2024 revised eligibility for mental injury claims and introduced a new requirement for workers to demonstrate continued entitlement to wage replacement payments beyond 130 weeks. New South Wales has since passed comparable legislation. The University of Melbourne applied those Victorian parameters to a national systems dynamics model tracking how people move across Australia’s income support pathways. In the scenario where psychological injury denial rates shift from 80% to 40% within the Victorian workers' compensation scheme, the modelling found around 10 fewer people per week reaching the 130-week threshold by the end of the projection period – with that volume redirected to other income support pathways, primarily life insurance income protection and social security.
Dan Walton, EML’s group executive for strategy and growth, said the redirection was already showing up in fund data. “When workers' compensation schemes deny access earlier or exit claimants sooner, the income replacement obligation doesn’t disappear – it migrates. Income protection inside super is shifting from a backstop to a secondary safety net. Our early discussions with the superannuation industry are revealing that funds are seeing this data translate firsthand into their claims experience. These insights are helping shape how they approach claims management,” Walton said.
Across Australia’s life insurance sector, mental illness now accounts for the largest share of total and permanent disability (TPD) claims – roughly one in three payouts – and approximately 20% of income protection claims, according to Council of Australian Life Insurers (CALI) figures cited in the white paper. Payouts for mental health-related life insurance claims exceeded $2.2 billion in 2024, a figure that has roughly doubled over five years. Of that total, $887 million was attributed to income protection alone.
CALI estimates for 2023-24 show life insurance income protection covered 32,766 recipients at a total cost of approximately $4.3 billion, while TPD cover supported 22,089 recipients at around $4 billion – the highest average per-person expenditure of any scheme across Australia’s 11 income support systems. The Australian Prudential Regulation Authority (APRA) data referenced in the paper shows the average TPD claim in superannuation takes close to four months to resolve, with roughly 18% of claims exceeding six months.
Mental health TPD claims among Australians in their 30s rose 732% over the past decade, while uptake of mental health services among 18-24-year-olds increased by 50% over the same period, according to figures in the white paper. Several large superannuation funds have announced TPD premium increases of up to 40% from June 2026, attributing the adjustment to rising disability and mental health claims from younger members.
EML’s analysis frames the pressure as structural rather than demographic. Claims that previously sat within workers' compensation – where treatment funding and income replacement are combined – are now entering superannuation’s income protection product earlier in the claimant’s journey, often after a dispute or denial in another scheme. A product design gap compounds the issue. The Australian Securities and Investments Commission (ASIC) data shows 77% of mental health TPD claims assessed under Activities of Daily Living (ADL) tests are rejected, against 15% for claims assessed under the standard TPD definition. ASIC identified this disparity in its 2019 review and has since pressed insurers to revise definitions and assessment practices.
The white paper draws on Cross Sector Project, which mapped Australia’s 11 major income support mechanisms – spanning workers' compensation, compulsory third-party (CTP) schemes, life insurance inside and outside superannuation, Department of Veterans’ Affairs (DVA) entitlements, the Disability Support Pension (DSP), and others. Those systems were built under separate legislation, with differing eligibility tests, evidence requirements, and benefit structures.
Total spending across the 11 systems grew approximately 73% between 2015-16 and 2023-24 in real terms, driven by a 7.2% increase in the number of recipients unable to work due to illness, injury, or disability, per Monash University’s 2023-24 update. Life insurance income protection, despite a fall in recipient rates from 4.1 to 1.91 per 1,000 workers over that period, recorded rising absolute expenditure – a pattern the research attributes to increasing claim complexity among those who do reach the scheme. Monash University findings also indicate that for workers whose benefits ceased under the NSW 2012 legislative reform, approximately 60% had moved onto a social security payment within the following year – around two-thirds to JobSeeker, one-third to the Disability Support Pension.
University of Melbourne researchers note that departures from workers' compensation are most often triggered by claim denial decisions rather than benefit duration endpoints, with the resulting demand shifting to social security and life insurance products. The Productivity Commission has estimated that mental ill-health costs the Australian economy up to $220 billion annually across healthcare, lost productivity, and reduced wellbeing. Australian Institute of Health and Welfare (AIHW) data puts health system spending on mental health and substance use at approximately $11.9 billion for 2022-23, equating to around 7% of all disease expenditure.
The white paper outlines three risks for funds that do not respond: increased claims volatility, worse outcomes for members at the point of maximum vulnerability, and greater exposure to regulatory and reputational scrutiny. It contends that mental health claims require specialist handling – including trauma-informed communication, coordinated case management, and earlier access to clinical support – that is not yet standard across the sector. An independent evaluation by actuarial firm Taylor Fry examined an EML program covering Comcare claimants with primary or secondary psychological injury and older long-duration claims. Participants were 247% more likely to return to work within six months compared to non-participants.
APRA has separately flagged concerns about the long-term sustainability of group insurance in superannuation, noting that without intervention, the trajectory of mental health claims could threaten the viability of default cover. ASIC’s ongoing scrutiny of claim denial rates adds a further compliance dimension. The Life Insurance Code of Practice now contains specific mental health fairness commitments, and Financial Services Council (FSC) Standard 21 is broadening mental health training requirements for claims staff. EML said it is engaged with the Association of Superannuation Funds of Australia (ASFA) and the broader industry on the paper’s implementation recommendations. EML manages approximately 90,000 claims annually across Australia.
