So the real difference between "mental illness" and "physiological illness" is the acceptance of a test? i wonder if that is a disprovable hypothesis...
Doh, I need to get esoteric here.
Probably that could be seen as an operational definition and so would be disprovable in the sense that it could be tested and if wrong it could be found out to be wrong.
If we can find another reason that would disprove it, at least in part. Of course though some insiders consider it this way, it does not mean there are not other reasons - including many of the popular ones. I also knew quite a few in the insurance industry (but only sales people) at one point ... some of them were less than exemplary individuals.
However the issue is not mental versus physical, but unprovable versus provable, with mental illness being currently unprovable. If they had objective and highly validated tests for mental illness I think insurance would accept it. However such a finding would probably make it a brain or genetic or other physical disease.
I still hold that mind probably does not exist, so the term "mental" is problematic. Mind was, and largely still is, a superstitious description of part of brain function.
An issue with mental illness is not there is nothing wrong with these people either, though I am sure malingering and fraud are considered by insurance industry people, but that its a false diagnosis. Why should they pay for bogus medical diagnosis and anything that follows from that?
Perhaps the most important reason is this. If anyone can objectively prove their "mental" illness then any justification for treating "mental" illness different from physical illness, under insurance provisions, would be under serious challenge. It might result in changes under law, or large class action lawsuits. It might result in some companies changing their policy and winning over clients, which would force a change within the industry over time.
PS Which raises the question as to whether this is dishonest behaviour, as instead of simply saying they cannot trust the diagnosis (and look at how hard they challenge other diagnoses, especially things like whiplash), they shift focus with these unprovable disorders (that may be physical) and call it mental. The insurance industry is sometimes embracing and supporting biopsychosocial views that "justify" these kinds of claims. The interaction between insurance giants and politics of social change in the UK is well documented.