Donʼt ask, donʼt tell – genetic testing and adverse selection

Since the publication of our SONAR 2017 report on cancer screening and liquid biopsies, genetic testing has been widely adopted by public health systems and individuals. This has significant implications for life insurers, not least in respect to the regulatory constraints involved.1

The major challenge for life insurers is to obtain adequate and risk-relevant information during the underwriting process, since existing regulation was mostly enacted before the widespread distribution of direct-to-consumer (DTC) genetic tests. Generally, regulation disallows the use of genetic information in underwriting life insurance. This raises the prospect of more customers at higher risk of disease or mortality applying for life insurance, leading to adverse selection. Customers in the know may also fear being denied life cover due to some genetic conditions, leading the insured to withhold such information from the insurer.2

A new generation of predictive genetic tests based on polygenic risk scores (which attempt to quantify the cumulative effects of a number of genetic variants to display predisposition to a disease3) promoted by companies such as 23andMe and YouSurance, is only likely to widen the information gap between insurer and insured. Nevertheless, some insurance groups have been looking at the upside potential.4

Regulation that stimulates genetic information asymmetry will significantly impact insurersʼ ability to offer attractively priced coverage, and may challenge the way in which insurance risk is considered and managed. Insurers must be able to evaluate relevant consumer information when underwriting, and that includes risk-relevant data from genetic tests. Currently, there seem to be three broad regulatory approaches to access and use of genetic data for risk assessment: none/self-regulation, limitations by law, and outright legal ban. This lack of uniform approach shows the need for industry groups and regulators to work together to agree on reasonable selfregulation, one that balances the interests of consumers while maintaining the ability of insurers to underwrite sustainable products.5

Potential impacts:

  • Loss developments can be worse than expected if those at increased risk buy disproportionate insurance cover, while those not exposed to genetically-triggered diseases stay away.
  • As with any new innovation, there will be a challenging transition period in which insurers will need to develop the know-how of capturing and managing the data, design systems to incorporate the data and implement new underwriting approaches.
  • As the results yielded by genetic tests become more accurate and their use becomes more widespread, the way insurers traditionally pool risk to differentiate individual risks may no longer be suitable.
  • Allowing access to an insuredʼs genetic information would enable more accurate risk assessment.
  • In addition, access to genetic information could improve customer engagement and services. New value-added products to cover specific diagnostics, or services tailored to the insuredʼs health goals, could create an active partnership between life insurer and insured, vastly improving customer retention. 

 

[1] See 2017 SONAR report, Swiss Re

[2] Seeing the future? How genetic testing will impact life insurance, Swiss Re Institute, 2017

[3] Polygenic risk scores: how useful are they? Genomics Education Programme, 25 October 2018

[4] The Risk of Anti-Selection in Protection Business from Advances in Statistical Genetics, Reinsurance Group of America and Kings College London, August 2018

[5] Can life insurance pass the genetic test? Swiss Re Institute, 2019

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