Genetic testing could lead to life insurance discrimination

The insurance industry needs to prepare an effective response to the threat that genetic testing and those results in life insurance could be used in underwriting and lead to discrimination, the Actuaries Institute believes.

The institute’s report, ‘Genetics – A Testing Time for Insurers’, said that even a small rise in the number of genetic tests could lead to significant increases in life insurance claims costs.

The authors, Alan Doble and Jessica Chen, said the impact of declining tests costs and greater public interest in ancestry and health was driving increased genetic testing.

“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 said.

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“Conversely, if it is known that genetic test information may need to be disclosed for use in underwriting life insurance policies, that may deter people from undertaking a test that could benefit their wellbeing.

“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.”

‘Anti-selection’ would occur when those who found they had an increased risk of future disease could still obtain life insurance at standard rates. Insurers would then fear premium rates would need to increase to cover the extra insurance claims costs.

The report said these extra costs could lead to those who were healthy to drop out of life insurance, and that insurers would find themselves with a pool of insured lives that were becoming potentially less healthy, and would force premiums higher.

"…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.” Chen said.

The report noted that as most Australians could obtain life insurance cover without disclosing medical information, genetic testing would more likely have an impact on voluntary retail cover or increased cover sought under group insurance.