Genetic testing is being promoted as one of the top advances of this century to date in helping people with the prevention, treatment and early diagnosis of disease. At first, genetic testing was very limited, expensive, and usually limited to one specific test of a suspected abnormality. Since the Human Genome Project was completed in 2003, the cost of testing has fallen dramatically and the widespread platform of different tests that can be run on one sample has grown substantially. The use of genetic testing in clinical medicine has certainly advanced how patients are diagnosed and treated, and is welcome. It is likewise welcome in life insurance underwriting, but only to the degree it is accurately and fully disclosed.
Life insurance pricing is dependent on many things, but for underwriting purposes, the accuracy of the information given the insurer is paramount. Every applicant, broker and agent wants the best and most competitive price for their client. This has become so much truer in the expanding field of “preferred” underwriting, where a standard issue can sometimes be looked at as a rated policy and the degree to which preferred and super preferred issue can be achieved is key to policy placement. This generally requires information that illustrates to the underwriter a mortality which will be better than that of the average applicant, and much better than that of the rated one. Favorable genetic testing is one way to get there, and also of tremendous benefit when there is a disease in the family history that the applicant can show he or she did not inherit.
Life insurers are allowed to consider genetic testing in their underwriting—in the United States, the Genetic Information Non-Discrimination Act of 2008 prohibits insurers from using genetic information to discriminate with respect to health insurance but does not cover life insurance. Canada also has no such prohibitions for life insurance. Insurers do not order genetic testing as part of requirements for their applicants in the U.S., but can certainly use such information that is known or revealed in their underwriting process.
When the information is known by the client or agent but not disclosed, the problem for all applicants becomes more evident. There is a difference between anti-selection and non-disclosure. Non-disclosure is the failure to provide information material to underwriting (“I know what the result is, but I’m not telling you”). Anti-selection is the choice of an insurance company because the information is not specifically requested or required by the insurer, even though the applicant knows it might represent an adverse consequence. Either way, the result is the same: that the insurer has likely underpriced that particular risk, or accepted it when it might have declined to issue a policy if it knew the results in question.
The consequences to an insurer are obvious when it is making decisions without full knowledge of genetic information. First and foremost, eventual mortality will be higher than an insurer has priced for. The consequences will lead to someone having to share the deficit or shortfall and, after poor company results, is generally extended to the entire applicant pool. As such, healthy or preferred risks will bear the consequences for anti-selection or non-disclosure. Prices will rise, product design will become more conservative and perhaps more limited to account for the results, and suspected higher risk lives will be priced even more expensively. Of course, even the “preferred” issue will have pass along costs that will have to be absorbed. As life insurance is still a discretionary purchase, it is one that will be omitted if its costs rise too much relative to its value.
The increased availability of predictive and reliable health information from genetic testing only increases the risk of anti-selection for insurers. People have easy and affordable access to genetic testing that usually even their primary care physicians would not run (and as such, the information isn’t available on Attending Physician Statements). There was a time insurers (from the requirements asked of applicants) often knew more than the applicants about their individual health. Now that balance has changed, and it is much more likely to be quite the opposite. The internet also allows incredible access to information about risks as well as allows people to freely exchange information about their conditions. Generally, that is good; more shared information increases an individual’s ability to be exposed to more potentially positive information. At the insurance end, it can allow agents and clients to steer toward companies who do not test for a specific condition or are less likely to discover it without disclosure, and share that with potential clients. In the short run this is problemsome for the particular insurer involved but over the long run is harmful to all insurers.
Insurers welcome genetic information in that it makes their underwriting of risks more accurate. It allows lower risks to receive more competitive pricing. The better that pricing becomes, the more people potentially come into the market for life insurance. But when a lack of information causes clients who are impaired to apply for greater amounts of insurance than the population who is less at risk, the more difficult it becomes for everyone—first for the insurer and eventually for the future purchaser. Insurers are working toward narrowing this information deficit, with the use of more innovative underwriting systems, better and more precise questioning of applicants, additional testing for medications on blood and urine samples and the use of pharmacy profiles, and a better business intelligence system to close any information gaps. But unless the insurer at least can stay on pace with the rapidly increasing amount of readily and affordable information that an individual can get without any way that an insurer can reference those findings, the more difficult it becomes to maintain a level playing field for all those applying for life insurance, particularly the healthier applicants to which insurers are marketing discretionary and fiscally competitive products.
