Genetic testing double edged sword for insurers
Genetics are being hailed as one of the biggest scientific breakthroughs of all times - but they are giving insurers a headache.
Monday, February 19th 2001, 11:17PM
Genetics are being hailed as one of the biggest scientific breakthroughs of all times. The challenge of unravelling the human genome had as much complexity as landing on the moon, but potentially offers more benefits to mankind.
By mapping the genome scientists hope to be able to work out what genes are responsible for various diseases and ailments, and hopefully, they will be able to develop cures.
Arguably these breakthroughs will lead to better health and longer life spans.
But this discovery presents a huge dilemma for the insurance industry globally. Sovereign risk product manager Michael Hewes says genetic testing is the most major change for the life insurance industry since the invention of the abacus.
Any developments in gene science may impact on their calculations of how long people may live and thus affect premiums, or even whether people are insurable.
The question being asked is should life insurance companies have access to a person's genetic information to help them assess the risks?
To understand the issue it's worth stepping back in time and consider the origins of insurance. Traditionally it was about people pooling all their risks and paying equal premiums, therefore sharing their risks amongst them.
Over time insurers have developed ways of estimating an individual's risk then levying the appropriate premium. (There is a standard premium which doesn't get lowered, then "loadings" are put on top for people who are judged to have higher risks than average).
With the help of genetics insurers will get a more sophisticated tool to help them screen out the risks - that is the people - they don't won't to cover.
Under this scenario the idea of everyone being insurable becomes questionable.
If an insurer knows you have a gene which could potentially set off a disease or condition they would have to pay out on in the future, then they would say no to your proposal or levy a very high premium.
Battle lines are being drawn over the use of genetic information in underwriting insurance proposals.
There is a view that this sort of information should be treated differently to other medical information. The argument goes that this information only provides information about the susceptibility to diseases.
Just because you have a gene that is related to a particular condition, doesn't mean you are going to suffer from that condition.
The inequity argument is further progressed with the line that it would be unfair to discriminate against people on the grounds of their genetic make up because they can't avoid the genes they were born with.
Privacy is also raised as a concern in this area. Greater privacy should be afforded genetic information as it can also affect direct relatives who share some common genes.
On the other side of the fence are protagonists who argue that the use of genetic testing is just another tool for helping evaluate the risks.
One of the key tools insurance companies currently use in assessing a person's individual risk are questions about family history and lifestyle.
For instance smokers have a higher probability of developing many illnesses, therefore they will pay a higher premium than non-smokers. Likewise, if one of your parents died of a heart condition at the age of 40, then it's more than likely that a loading will be placed on your premium.
The big plus is that people, who can show through genetic testing, that they are free of some of these genes then they could get a reduced premium.
However, it's unlikely that such testing will determine whether an individual will actually suffer from one of these conditions, or that it will tell an insurer when a person will die.
"Underwriting is an art not a science," AXA New Zealand head of client services Robyn Alston says. "Predicting when someone is going to die is very difficult."
Added to that are all the events out of left field like accidents and infectious diseases.
She says cost may be the other problem with genetic testing.
Where's the industry sitting on this one at the moment?
The Investment Savings and Insurance Association's (ISI) position on genetic testing is clear at the moment and in line with other countries such as Australia and Britain.
"An insurer will not ask for a genetic test as part of the underwriting proposal," ISI chief executive Vance Arkinstall says.
"But if you have had a genetic test they may ask to see the result."
Arkinstall argues insurance companies should be put on a level playing field with the person wanting insurance.
"Insurers should have the same information for underwriting the risk as an individual has for proposing the risk," he says.
Also, insurers will not offer lower than standard premiums to applicants with favourable genetic test results.
Arkinstall says this position complies with the insurance guidelines set out in the Human Rights Act.
Insurers in New Zealand are comfortable with this position.
Arkinstall points out the testing may have some benefits.
"Genetic testing many in fact provide a much more accurate assessment and insurers maybe able to offer better terms," he says. "There the great possibility that a number of people may be better off."
But he also acknowledges the other side of the argument: "It may create a group of people who couldn't be insured."
The choices for the bad risks are that they would either become uninsurable, creating a whole disenfranchised class, or they may have astronomical premiums.
That then raises the question, will insurance companies take on the risk, or will it end up being the role of the Government?
Governments, particularly left-leaning ones, have over the years established businesses to look after the part of society that can't afford certain services.
The Public Trust Office was set up to provide a will making service for people who couldn't afford one, and even to this day it is not legally allowed to charge for writing a will.
Part of the social objective of the People's Bank is that it provides services to those who either can't afford to use a bank, or don't have a local bank branch, or who simply are being rejected as customers by the big, commercial banks.
One of the things the issue of genetic testing does is highlight the importance of full disclosure of information to an insurer.
Strategy Financial Services director Graeme Lindsay says it is vital that every piece of information, no matter how seemingly small or irrelevant is disclosed to the insurer.
Sometimes this can be difficult as proposal forms can run up to 12 pages and they ask all sorts of questions which require a person to trawl back through their medical and family history.
He says one of the pluses of dealing with an adviser is that they know the prompts and how to fill out the forms properly.
"You must be scrupulously careful (when filling out proposal forms)," he says.
His advice is that if you remember something after sending off the proposal form you should put the new information in writing and post it off to the insurance company.
The cost of non-disclosure is that your claim may not get paid so all the premiums have been wasted.
It's unknown how many claims are disallowed each year because of non-disclosure, but it does happen.
Aon adviser Brian Klee agrees it is important that people fully disclose all the information, but he says there is also a responsibility on the insurers to ask the right questions.
Currently they tend to use broad catch all questions, rather than specific ones.
"I feel they could do a bit more to make the public aware," he says.
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