A former top insurance executive has blown the lid on what he describes as "disgusting" behaviour inside the sector, and called on the banking royal commission to examine the treatment of customers with mental illness.

Key points: Former TAL executive Patrick O'Connor says company tried to minimise payouts for mental health claims

Former TAL executive Patrick O'Connor says company tried to minimise payouts for mental health claims Mr O'Connor wants banking royal commission to look at treatment of customers with mental illness

Mr O'Connor wants banking royal commission to look at treatment of customers with mental illness Insurances industry facing massive increase in customers claiming for disability over mental illness

Patrick O'Connor, a former senior executive with insurance giant TAL, says the industry is putting profits before people and has failed to clean up its act following years of scandals.

He says that when he was working there, the company's focus was on how to minimise payouts for customers suffering mental illness.

"If the system for how mental health is treated in the insurance industry is reflected by my experience, then that is disgusting and it has to be changed," Mr O'Connor said.

His decision to speak out comes as a new survey from beyondblue shows that 50 per cent of people who tried to claim on their permanent disability cover on mental health grounds last year found the experience worsened their illness.

Mr O'Connor says he became embroiled in a bitter dispute over his own mental health claim with his former employer.

"If they treat me this way and I was one of their own, what's to stop them treating other people this way?" he said.

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Claiming for permanent disability

Patrick O'Conner left TAL and made an insurance claim for total and permanent disability. ( ABC News: Greg Nelson )

Mr O'Connor left his position with TAL in 2013 after developing severe anxiety and depression.

His mental health worsened after he left the company, his marriage ended, and he claimed on his two total and permanent disability (TPD) policies with TAL.

The insurer paid out one claim in 2016, but initially declined the second, saying there was not enough evidence Mr O'Connor was suffering from severe mental illness while employed with TAL.

Eight months after he lodged the claim and just as he was preparing to sue TAL, the insurer told him last week — two days after being contacted by the ABC about Mr O'Connor's case — that it had decided to pay out his claim.

"The fact that they've written out a cheque within 48 hours of hearing this story is going public through the media is, to me, a cop-out," he said.

If you or anyone you know needs help: beyondblue on 1300 22 4636 or by visiting www.beyondblue.org.au/get-support

beyondblue on 1300 22 4636 or by visiting www.beyondblue.org.au/get-support Lifeline on 13 11 14

Lifeline on 13 11 14 Headspace on 1800 650 890

In response, TAL said it rejects any suggestion "that the approach by the ABC in relation to this claim had any impact on the fair and due process accorded to the assessment of the claim following the customer's request for review, or on the timeline for that review being completed".

TAL declined 7.30's request for an interview, saying it does not comment on individual claims.

"We acknowledge the stress that a declined claim and added review process can put on the customer, and try to manage this process as quickly and as considerately as we can," the company said in a statement.

"Our approach in assessing all claims is to be supportive, empathetic and sensitive to our customers who are going through a challenging and difficult time, while objectively reviewing the medical and other information against the terms of the policy."

'We weren't celebrating improving people's lives'

Mr O'Connor said when he was an executive at TAL, the company tried to minimise payouts for customers suffering from mental illness.

"One of the key parts of an executive meeting that you would have on a weekly basis was profitability, and without a doubt the biggest variable that you have is claims: and the biggest variable within claims is the mental health conditions," he said.

"It was about how many we got back to work and about how many we got off claim. We weren't celebrating successes about improving people's lives. We were celebrating financial successes."

TAL rejected Mr O'Connnor's description of its approach to mental health claims.

"In 2017, TAL paid more than $1.6 billion in claims to our customers, and mental health was the second-largest category with $237 million paid," the company said in statement.

"Claims management at TAL is undertaken based on an objective assessment of the individual facts and merits of each claim, conducted with care and empathy for the customer, and with the intention of paying all valid claims."

Mr O'Connor's lawyer, Josh Mennen from Maurice Blackburn, said it was brave of Mr O'Connor to speak out.

"It's been a very brave move for Patrick to come out and call out this poor behaviour, as somebody who was at very senior levels within a major life insurance company," he said.

"The reality is that if this is how they treat their own senior executives, what hope do the rest of Australians who have ordinary cover have?"

Increase in mental health claims

There has been a rise in the number of people claiming for income protection and total permanent disability for mental illness. ( Source: Actuaries Institute, 2017 )

The insurance industry is facing a massive increase in customers claiming for income protection and TPD for mental illness.

There is a scarcity of publicly available data on mental health claims, denials and assessment times.

However, figures from one big insurer published in an Actuaries Institute report last year showed that the proportion of TPD claims related to mental health doubled from 10 per cent of all claims in 2011 to 20 per cent in 2015.

The average value of each payout was about 65 per cent higher for mental illness claims, compared to other illnesses.

The Financial Services Council (FSC), which represents the insurance industry, has dismissed suggestions the sector has responded to the surge by denying or delaying more claims.

"Insurance companies want to pay claims as quickly as they can, and as easily as they can," FSC policy manager Nick Kirwan said.

"The figures from the Australian Prudential Regulation Authority show that 90 per cent of all claims are paid in the first instance and the Code of Practice, which came in last year, looks to make the claims process as simple as possible."

Claiming process has 'detrimental effect'

The mental health group beyondblue has just completed a survey of 1,800 people who have claimed on income protection and TPD insurance for mental health reasons.

It found 50 per cent of people who tried to claim on TPD, and 40 per cent of people who claimed on income protection, said the process had a negative impact on their mental health.

It also found that 36 per cent of people were less likely to seek help from a health professional in the future because their insurance application was turned down.

"These processes have a very detrimental effect for everyday people who have, in good faith, bought products, paid their premiums, become unwell and then expect to be treated like anyone else — and are then subjected to quite burdensome processes and stressful processes," beyondblue's chief executive officer Georgie Harman said.

Mr O'Connor acknowledges the irony of being forced to fight against a system he helped create.

"I'm pretty disgusted, to be honest, that that's what my life consisted of," he said.

"I couldn't imagine ever going back to any sort of occupation where it's not about far more intrinsic values to helping people."

He now wants to help the royal commission expose what he says is systemic mistreatment of people with severe mental illness.

Australia's big insurers are preparing to be hauled before the commission into banking later this year.

Watch the story tonight on 7.30.