Why TPD Insurance Is Changing

Total and Permanent Disability (TPD) insurance has long been part of the “safety net” for Australians and their families. It’s designed to provide a lump sum payment if you become permanently disabled and are unlikely to ever work again.

But behind the scenes, regulators and insurers are asking a hard question: is TPD insurance – in its current form – still sustainable? And increasingly, the answer is being shaped by one major issue: mental health.

Recently, the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) hosted a roundtable with life insurance CEOs to talk about the growing pressures on TPD insurance and what needs to change. The message was clear – if the industry doesn’t act, TPD may become less affordable and less stable for everyone.

Why is TPD Under Pressure?

Insurers at the roundtable agreed: TPD claims are increasing in both frequency and complexity, and this is happening across superannuation (group insurance) and retail policies.

A few key trends are driving this:

1. More mental health-related claims
   Conditions such as depression, anxiety, PTSD and other psychiatric illnesses are leading to more TPD claims. These conditions can be severe and genuinely disabling, but they don’t always fit neatly into older concepts of “total and permanent disability” that were originally designed around physical injury or illness.
2. Complex recovery pathways
   Mental health conditions often involve:
   •  Periods of severe incapacity
   •  Partial recovery
   •  Relapse or episodic symptoms
   This makes it harder to assess whether someone is “totally and permanently” unable to work under traditional TPD definitions.
3. Financial impact on premiums and insurer stability
   When claims increase and become harder to predict:
   • Premiums tend to rise over time, making TPD cover less affordable for everyday Australians
   • Insurers face greater financial volatility, which can ultimately threaten the availability or quality of cover in the long ter

   In short: the current design of many TPD policies doesn’t always match the reality of how disability – particularly mental health-related disability – actually unfolds in people’s lives.

What Are Regulators Asking Insurers to Do?

APRA and ASIC have made it clear that they expect insurers to take action now in areas they can control, rather than waiting for new laws or regulations.

Some of the key themes from the roundtable were:

1. Rethink Product Design
Insurers are being encouraged to explore “future fit” products that:
• Better reflect recovery pathways rather than a simple “yes/no” view of permanent disability
• Recognise episodic capacity – clients who can work some of the time, or in some roles, but not others
• Take into account changing work patterns – flexible work, remote work and different definitions of “occupation”

There are legislative constraints that limit how far insurers can change TPD today, but some are already piloting new designs within the current rules. Regulators are supportive, but their message is: don’t wait for perfect legislation – do what you can now.

2. Address Challenges in Superannuation (Group TPD)
For many Australians, TPD cover is held inside superannuation as part of default group insurance. At the roundtable, participants noted, when claims experience deteriorates, super trustees and insurers often respond by:
• increasing premiums
• reducing cover rather than redesigning the products more fundamentally.

Trustees have competing priorities and limited resources, which can make deeper product changes harder to implement. APRA and ASIC encouraged insurers to work proactively and constructively with super trustees to explore product changes that could lead to better member outcomes – not just short-term price fixes.

3. Ensure the Retail Market Keeps Pace with Reality
On the retail side (cover arranged via advisers or directly with insurers):
• There is momentum towards new TPD product designs, but uptake is still low.
• Traditional TPD products still dominate advice and sales, even though they may not be priced or structured with today’s risk profile in mind.

Regulators have flagged the importance of:
– robust pricing and reserving – making sure premiums genuinely reflect current claims experience and emerging mental health trends
– fair claims handling – insurers must continue to honour policy terms and comply with their legal obligations, even as they work to improve sustainability.

What Does This Mean for Clients?

From a client perspective, you may not see these industry conversations in headlines – but they can affect you over time in very practical ways:

1. Premium Affordability
If claims costs keep climbing and products don’t adapt, premiums for TPD are likely to increase. This can lead to:
• super funds increasing default premiums
• advisers recommending changes to cover levels to manage affordability
• some clients questioning whether to keep TPD at all
For families who rely on TPD as a core part of their protection strategy, this can be challenging – particularly if mental health risks are a concern.

2. Changes to Product Features and Definitions
Insurers may gradually:
• adjust definitions of “total and permanent disability”
• place clearer boundaries around mental health-related claims
• introduce new product types that sit between traditional TPD and income protection, with more nuanced benefits and conditions

Over time, this could mean clients need to review their existing cover to understand:
• what’s covered and what isn’t
• how mental health conditions are treated
• whether their current structure still matches their needs and risks

3. Greater Focus on Mental Health – and Support Services
As mental health takes centre stage in disability discussions, we may see:
• more emphasis on early intervention and rehabilitation support
• policies that integrate or encourage treatment pathways, rather than paying a lump sum and stepping away
• insurers partnering with mental health professionals or support services to improve outcomes.

While this is partly a sustainability issue, it’s also a positive shift: it recognises that financial support alone isn’t enough – sustained, holistic support can make a real difference to recovery and quality of life.

How Should Clients Respond?

You don’t need to track every APRA/ASIC roundtable, but you do benefit from being proactive about your own cover. A few practical steps:

1. Review your existing TPD cover regularly
• How much cover do you have?
• Is it held through superannuation, personally, or both?
• Do the definitions match your occupation, working patterns, and health risks?

2. Consider mental health explicitly in your planning
Many Australians will experience a significant mental health challenge at some point in their life. It’s worth asking:
• How would a long-term mental health condition impact your ability to work?
• Would your current cover respond to that scenario as you expect?

3. Talk to an adviser who understands the evolving landscape
The sustainability issues behind TPD are complex – and most of the real change happens before it hits public news. Working with an adviser who keeps across product changes, regulator guidance and claims trends can help you:
• choose cover that’s more likely to remain sustainable
• structure TPD alongside other cover types (such as income protection and trauma)
• balance affordability today with resilience for the future.

4. Stay open to new product designs
As insurers experiment with more flexible disability and mental health protection products, some options may look different to traditional TPD – but could better reflect real-world recovery journeys. It’s worth being open to discussion about newer structures, rather than defaulting only to legacy designs.

The Bottom Line

TPD insurance is under genuine pressure, driven in large part by rising and complex mental health-related claims. Regulators and insurers are aligned on one point: doing nothing is not an option if we want TPD and broader disability cover to remain available and affordable for Australian families.

For clients, this isn’t a reason to panic – but it is a reason to stay informed and engaged. Understanding how your TPD cover works, how mental health is treated, and how the broader sustainability conversation may shape future products puts you in a stronger position to protect yourself and your family.

If you haven’t looked closely at your TPD cover for a while – especially in the context of mental health – now is a good time to start the conversation.