Personal risk insurance premiums have become a major concern across the industry, covering life cover, total & permanent disability (TPD), trauma and income protection. There isn’t one single reason for the recent price increases. Instead, several factors are working together to push costs up.
Life insurance pricing is not just about cost of living. It reflects claims experience, distribution capacity, capital pressures and the investment environment insurers operate in. Right now, all of these are moving in the same direction.
Below, we outline the four main drivers most often highlighted by industry and regulators. With this context, it’s easier to understand why premiums have been rising and why so many people are asking what’s behind the changes.
In recent months, we’ve seen more clients requesting a no-obligation review with our insurance specialists. These reviews are designed to help you understand how industry- wide repricing is flowing through and what it means for your own arrangements.
Mental health claims at historic highs
The most significant driver is the surge in mental health- related claims, particularly within TPD and income protection. Recent reports show 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 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.
Decline in distribution due to adviser numbers
The second force is less visible 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 adds friction and expense into the broader system.
Insurer profitability under pressure
A third driver is sustained profitability challenges 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, noting industry IDII losses in excess of $3 billion over a five-year period, even after significant premium increases. APRA also highlighted competitive dynamics that delayed product redesign, 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 repricing premiums to align expected claims costs with the capital required to support long-duration risks. Sustainability has to be funded, and premiums are one of the few levers available.
Low interest-rate environment reduced investment cushion
Life insurers do not just collect premiums and pay claims; they invest reserves and capital. A prolonged low interest- rate environment compresses 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 leans 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 increase unit costs. Weak profitability forces repricing and redesign. The investment backdrop reduces the cushion that once absorbed some of the strain. None of this can be attributed to a single event. It is a system recalibrating to new claims and economic pressures.
Disclaimer – The information in this newsletter 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.