October 26, 2017
The life insurance sector can no longer ignore genetic testing which has the potential to destabilise the sector and cause increases in the costs of claims, a new report released by the Actuaries Institute has claimed.
The report, Genetics – A Testing Time for Insurers, stated that lower costs and increased public interest in ancestry and health were driving more widespread genetic testing which was equipping members of the public with information that could impact the life insurance sector.
This information could destabilise the life insurance industry as consumers choose not to disclose health risks discovered in the tests or withdraw from life insurance after finding they are unlikely to suffer heritable diseases, according to the report.
“For the life insurance industry, if health information known to the insurance applicant is not disclosed, it may be expected to lead to anti-selection, increasing premiums and ultimately impacting the financial sustainability of the industry,” the report added.
It claimed that anti-selection was likely to occur when those who have discovered an increased risk of a future disease secure life insurance cover at a rate lower than their own risk would imply. As a result, insurers would need to increase premiums to cover extra insurance claims costs which, in turn, has the potential to cause those without health risks to exit the life insurance pool forcing premiums higher for those who remain.
“Genetic testing is therefore more likely to have an impact on voluntary retail cover…”
“This creates a fundamental tension between the desire for insurance providers to be inclusive and not discriminate between insurance applicants, and the sustainability of insurance companies’ business models in the presence of information asymmetry and potential anti-selection,” the report said.
The paper said genetic testing was more likely to be an issue in the retail life insurance space as any cover secured through the direct or group life sectors typically does not require the disclosure of medical information.
“Genetic testing is therefore more likely to have an impact on voluntary retail cover or increased cover sought under group insurance,” the paper stated.
One of the authors of the report, BT Financial Group Director of Insurance, Finance, Jessica Chen said the growing use of genetic tests by members of the public was understandable, particularly if the tests helped them make informed decisions about their well-being.
“Genetic testing has far-reaching implications for society, well beyond that of insurance. It creates the potential for affected individuals to mitigate the risk of inherited disease,” Chen said.
“But there are complex issues for life insurance regarding genetic testing, cover availability and affordability. What needs to be resolved is a good response to the threat that test results may be used in life insurance underwriting and lead to discrimination.”