Waiting on a disability or income protection claim? The rules for how insurers handle it are being rewritten

First published 30 June 2026. Updated 27 July 2026 to note the release of the Final Report.

The rules that govern how life insurers handle claims in Australia are being rewritten.

The Life Insurance Code of Practice is the industry's public commitment on how quickly claims are decided and how claimants are kept informed along the way. A review of the Code, led by Peter Kell, a former Deputy Chair of the Australian Securities and Investments Commission (ASIC), reported to the Council of Australian Life Insurers (CALI) on 30 June 2026. People in the industry call the next version of the Code "LICOP 3.0".

Update, 27 July 2026: the review's Final Report has now been released, with 85 recommendations. It is covered separately in The Life Insurance Code review has handed down its Final Report.

The review lands at a difficult moment for the industry. Delay in claims handling is the most complained about issue in all of financial services, according to the Australian Financial Complaints Authority (AFCA). The committee that monitors Code compliance is recording rising breaches. And the Federal Court has ordered a super fund trustee to pay a $23.5 million penalty over claims handling failures, an amount ASIC noted exceeds the $18.5 million in revenue the trustee declared for the 2024 financial year. Insurers are being asked to lift their standards at the exact point where the evidence shows some are missing the current ones.

Here is what the review proposes, what the data behind it shows, and what it may mean for the cover you already hold.

Most people only know about one cover, and it may not be the right one

When money is tight, people reach for the cover they know they have: total and permanent disability (TPD) cover inside their super. Almost 10 million Australians have life insurance provided through superannuation, in the form of death cover, TPD cover and/or income protection cover, according to CALI. For many people it is the only insurance they are aware of.

But TPD is a strict, permanent disability lump sum. It is not designed for someone who is off work for a while and needs income now. Depending on the policy, the same super account may also hold income protection, which pays monthly amounts while you cannot work, and there can be early release of super options on medical or hardship grounds. Which one fits depends on the situation, not on which product is easiest to find. CALI itself has described people being funnelled into TPD when it may not suit them as "a square peg in a round hole".

This is the navigation problem in one paragraph. The question is rarely whether cover exists. It is knowing which covers you hold, which pathway matches your situation, and in what order to use them.

What the review proposes to change

The headline timeframes stay the same. An insurer still has two months to decide an income protection claim and six months for a lump sum claim such as TPD or death cover. What the review proposes to tighten is everything around those deadlines. Under the reviewer's preliminary recommendations, insurers would have to:

• cut the initial information gathering window from 10 business days to 5
• issue the written decision within the overall two or six month limit, rather than adding extra time on the end
• give every claimant a real, named human contact, not just people on income protection claims
• put minimum substance into progress updates, instead of generic "still in progress" messages
• accept tighter limits on the "circumstances beyond our control" provision that has been used to extend claims

Where the Final Report landed on that list: the 5 business day information window was dropped. The Final Report accepted that the shorter deadline was challenging and unlikely to improve outcomes, and the existing 10 business day standard stays. The other four survived. The decision notification rule was settled at 15 business days and within the overall claims handling timeframe. Details are in the Final Report piece.

The review also proposes stronger enforcement, including letting the compliance committee name insurers in its reports and embedding the Code in customer contracts. Law firm King & Wood Mallesons, writing for insurer clients after the Interim Report, summed up the direction bluntly: insurers "will need to raise their standards", and should "start a gap analysis now rather than waiting for the final report".

What the data shows about where claims go wrong

The problems the review is trying to fix are concentrated in specific, predictable places, and they map closely to TPD and income protection.

• TPD and income protection generate the most disputes. In data from the Australian Prudential Regulation Authority (APRA) for the year to December 2025, income protection sold without advice produced 446 disputes per 100,000 lives insured, the highest of any cover type. TPD sold without advice had the lowest acceptance rate of any major category, at 69%.
• TPD is the slow product. On APRA's figures, TPD claims take around 3.8 months on average to finalise, and roughly one in six takes longer than six months.
• Delay is the number one complaint. Across all of financial services in 2025, "delay in claim handling" was the most complained about issue at AFCA, and TPD complaints rose 43% over the prior financial year.
• The standard now has teeth. The Federal Court ordered a major super fund's trustee to pay a $23.5 million penalty for failing to handle death, terminal illness and TPD claims "efficiently, honestly and fairly". Over a five-week window in 2023, between 48% and 56% of open death claims and between 38% and 43% of open TPD claims had been open for more than 365 days. More than 7,000 people were affected (ASIC media release 25-286MR).

When claims go wrong, it is usually the handling, the delay, the errors and the process, rather than the final yes or no decision.

Why mental health claims are the flashpoint

Mental ill health is now the leading cause of TPD claims, on CALI's figures. It accounted for almost one in three TPD claims paid and one in five income protection claims in 2024 (CALI, "Mental ill health is straining Australia's safety net", July 2025, drawing on the 2024 CALI-KPMG cause of claims data). APRA has since put the same point to the actuarial profession, noting mental health claims now account for one in three claims paid (Jane Magill, "TPD sustainability: a product made for one world tested in another", 27 May 2026).

It is also where claims have historically been hardest to get paid. Under the most restrictive test, called "activities of daily living", ASIC found the declined claim rate for mental illness claims was 77%, against 15% for mental illness claims assessed under other definitions (ASIC Report 633, 2019).

That tension, rising claims on one side and restrictive tests on the other, has made mental health the most contested issue in the Code review. The industry wants room to limit mental health cover in standard policies. The reviewer has warned that doing so could be "a step back" from existing commitments. How it is resolved will shape both the cover people can buy and the claims they can make.

If you are in a claim now, or wondering whether you have one

None of the following is advice, and every situation turns on the specific policy wording, legislation and evidence. But the review and the data point to a handful of things that may be worth a look.

• Cover can switch off. After superannuation reforms in 2019 and 2020, default insurance can end on an inactive account or one with a low balance, and may never start for a younger member. Holding a super account is not the same as holding cover.
• One scheme's decision does not decide another. Being on, or being declined by, workers' compensation, a motor accident scheme or the Disability Support Pension (DSP) does not automatically determine a TPD or income protection claim. Each system applies its own test.
• The definition matters as much as the diagnosis. Whether TPD cover is "any occupation" or "own occupation", and whether a benefit is a lump sum or an income stream, can change what a claim needs to show and how it interacts with other payments. Evidence that someone cannot do their old job may not, on its own, satisfy an "any occupation" test.
• Offsets and timing can interact. Income protection benefits can be reduced by other income replacement payments, such as workers' compensation, depending on the policy wording, and the order in which claims are made can matter.
• A declined claim is not always the end. Reopened claim and dispute pathways exist, and the Code entitles you to regular progress updates on a claim in progress.

The pattern in the data is worth sitting with. Handling, timing and communication go wrong far more often than the final decision itself. That is a navigation problem, not an eligibility one, and it is the part of the system where knowing what you hold and how the pieces connect makes the most difference.

If you want to talk any of this through, we'll explain which doors exist for your situation and, if you want, introduce you to a firm on our panel. It costs you nothing. You never pay us. Panel firms do.

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This article is general information only. It does not take into account your personal circumstances and is not financial, legal, medical or tax advice. What applies in any claim depends on the relevant policy wording, legislation, medical evidence, employment history and individual circumstances.

Sources

• Review of the Life Insurance Code of Practice, led by former ASIC Deputy Chair Peter Kell: Interim Report (10 April 2026); Final Report (30 June 2026). lifecodereview.org.au
• APRA, Life Insurance Claims and Disputes Statistics (data to December 2025). apra.gov.au
• APRA, Jane Magill, "TPD sustainability: a product made for one world tested in another" (All Actuaries Summit, 27 May 2026). apra.gov.au
• AFCA, complaints data 2025 and the 2024-25 Annual Review. afca.org.au
• ASIC, media release 25-286MR, $23.5 million penalty; Report 633: Holes in the safety net (2019). asic.gov.au
• CALI, Mental ill health is straining Australia's safety net (July 2025), drawing on 2024 CALI-KPMG cause of claims data; Insurance in superannuation. cali.org.au