Why employee mental health is an insurance risk businesses can’t ignore

Mental health is no longer just a wellbeing concern, it is a measurable insurance risk that can expose South African businesses to claims, financial loss, and regulatory liabilities.

The South African Depression and Anxiety Group (SADAG) estimates that one in six South Africans will suffer from a mental health disorder in their lifetime, with depression and anxiety among the leading causes of disability in the country. For businesses, the knock-on effects of this can be significant.

This is according to Ryno de Kock, Head of Distribution at PSG Insure, who notes the link between mental health and workplace performance is well established, and the consequences can be significant.

Poor decision-making at any level of a business can produce errors that are expensive to correct and, in some cases, impossible to undo. He says this damage can quickly evolve into insurable events. “A distracted employee who provides incorrect advice, misses a critical deadline or delivers flawed work exposes the business to professional indemnity claims, while lapses in concentration can lead to accidents, equipment damage or operational failures that trigger liability claims.”

In regulated industries such as financial services, healthcare, and law, errors linked to impaired judgement can also result in regulatory sanctions or third-party losses. Businesses that recognise the connection between employee mental health and claims frequency are therefore better positioned to manage both their risk culture and insurance needs.

A poor mental health culture also exposes a business to reputational and talent-retention risks. “While the direct recruitment costs of high staff turnover are well understood, the indirect costs like diminished team morale and eroded client confidence are harder to put a number on, but often cut deeper,” says de Kock.

From a legal and regulatory perspective, South African employers also have an obligation to provide a safe working environment, which extends to psychological safety, not just the physical aspects. The Occupational Health and Safety Act, the Compensation for Occupational Injuries and Diseases Act and the Labour Relations Act collectively create a framework in which employers can be held accountable for foreseeable psychological harm.

“Where an employer knew or reasonably should have known that an employee was at risk and did nothing about it, the basis for a claim is already in place,” explains de Kock. “And the range of claims that can flow from workplace mental health failures is broader than most employers expect.”

De Kock believes the starting point for businesses is recognising that mental health is a genuine, quantifiable business risk rather than a soft wellness issue. “Employers who carry out regular mental health risk assessments, run effective employee assistance programmes, train their managers to spot and respond to distress, and maintain clear escalation pathways are meaningfully reducing their exposure long before a claim arises.”

Insurance then serves as a critical financial backstop when things go wrong despite those preventative measures. De Kock says businesses should work closely with brokers to ensure their cover is aligned to their specific risk profile, particularly in areas such as management liability, employers’ liability, professional indemnity and employment practices liability.

“No single policy covers all of the risk,” he says. “Businesses need to approach these risks as complementary layers of protection rather than isolated covers. Mental health is no longer simply an HR issue; it is a business continuity, operational and governance risk that requires deliberate attention and a proper risk mitigation strategy.”