Brave new world: insurance meets genetics

Insurance and science are set to collide as genetics moves out of the lab and into the underwriting book. ALAN DOBLE takes a look at the state of play in life insurance as new opportunities and challenges arise.

Genetics is one of the hottest media topics of the year, with an endless stream of news articles on the subject. When they think about it at all, most people in the financial services sector don't expect the genetics revolution to impact them much. However, I believe it will affect us all.

The challenges of the human genome project, which has mapped our entire genetic make-up, have been compared in complexity to landing on the Moon, but with much greater potential to benefit mankind.

The benefits will include a greater knowledge of what causes diseases and ageing. This will lead to enormous improvements in medical treatments, better human health and longer life spans.

It is likely that, in time, every human characteristic and every medical condition will be found to have some sort of genetic link that testing may identify in advance.

However should employers be able to use such information if it is available? Surely the criterion should simply be how well the potential employee can do the job? What will be acceptable in an employment context and where will the community draw the line?

But perhaps it is even more pertinent to ask: "What about personal insurance?"

The business of an insurance company is to properly classify insurance risks to charge the right premiums for the cover provided. Thus, a life insurance premium depends on the risk of dying. The salary continuance premium depends on the risk of becoming too sick to work. And, the cost of pensions or annuity incomes depends on how long the pensioners are likely to live.

Under current legislation, individual applicants for insurance policies are obliged to fully disclose all relevant information they have on their own risk factors. At present, this includes any genetic test results known to the applicant. But the battle lines are being drawn and this may not continue.

Some people feel very strongly that genetic information should be treated differently from other medical information. They argue that the genetic make-up of a person only provides information about susceptibility to diseases but does not prove that the person will suffer from the disease.

A further argument is that varying premiums would be unfair if based on genetic factors, because people cannot avoid the genes they are born with. There should be a greater right to privacy of genetic information, in particular because it also affects direct relatives who usually share some common genes.

However life insurers have responded to these arguments by reminding us that insurance has always been about probabilities. For example, smokers have a higher probability of developing many illnesses and so the premium for smokers is higher.

They also insist there are many things that will increase risk factors that are beyond a person's control such as catching an infectious disease, or having a car accident.

As such, premium rating depends on impartially assessing the risks as they exist at the time of proposing for insurance; it is not a question of blame.

Insurers also argue that family histories already provide a crude indicator of genetic factors for risk assessment, and have been used for a century. Genetic test results will enable this crude tool to be refined and will lead to cheaper premiums for many people.

Insurers feel that if applicants aren't obliged to reveal known genetic risk factors, then the right premiums can't be set. Genetic information is in this way similar to other health information. In the extreme, if insurers cannot persuade the public of their need to underwrite, that could spell the end of life insurance in its current form.

However the life insurers have not been sitting on their hands. Over a period of years they have developed a voluntary code of conduct for dealing with genetic test results in underwriting. It is based on consultation with consumer groups and genetics experts to develop a code that was hoped would gain wide acceptance.

This code should break new ground providing a strong lead on where the boundaries might be drawn for employment and superannuation.

Underwriting questions have not to date been a big issue for superannuation plans. Most members can join under automatic acceptance terms and obtain a reasonable level of insurance cover without being asked for evidence of health. But choice of funds may change entry terms for superannuation cover.

The emerging debate on the freedom to underwrite should therefore be watched with great interest by forward thinking employers, employees, superannuation advisers and trustees. Academic papers are now being written on genetic discrimination in employment and in insurance. The details, as they have been quoted, purport to show that some bad decisions have been made, showing little understanding of genetics or of risk factors.

As a result it is important that anyone who is responsible for such decisions quickly gains a sound base of knowledge or their professional credibility may suffer.

There have already been some proposals before Parliament in Australia for legislation to govern genetic privacy, or to strengthen anti-discrimination laws. I have no doubt that Parliament will pass laws on these issues quite soon, probably within the next two years.

From an actuary's perspective, genetic developments pose some of the most difficult problems for insurance today, but still no single person or body has all the answers.

These solutions will come, but it remains essential that as many perspectives as possible are presented as well as open discussion within a multi-disciplinary forum within the industry.

Most participants in the financial services sector do not have detailed expertise in genetics but do have highly relevant knowledge of areas that might be affected by legislation on genetics. As a result, it remains even more important for the financial services industry to take a keen interest in developments in genetics.

This is an edited extract of a presentation by Alan Doble, actuary with MunichRe, given at the 2000 ASFA conference in Sydney.