The life insurance industry needs to rethink its approach to genetic testing.
Currently in Australia, life insurance applicants must disclose to an insurer any health or genetic information known to them that might impact their policy. This includes their personal medical history, including known personal genetic test results, as well as medical and genetic test results for first degree relatives (i.e. brothers, sisters, parents) where known.
Should such genetic test information indicate the applicant has an increased risk of a disease or illness, insurance companies can and do use this information as the grounds for limiting cover through exclusions, reducing the term of the cover, charging higher premiums or even refusing cover altogether.
Clearly this approach discriminates against those in the community who undergo genetic testing to get a clearer picture of their health. Further, it has been proven to be a major disincentive to people proceeding with genetic testing and participating in vital medical research, due to fears that the results will negatively affect their ability to obtain life insurance.
In some countries, such as France, Germany and Sweden, governments have legislated to prevent insurance companies from accessing and using genetic test results in rating the risk of an applicant. In the UK, there is a moratorium on its use. While such measures protect the rights of the applicant, it leaves insurance companies exposed to an unknown and unquantifiable risk, as well as the potential for adverse selection, whereby greater numbers of high risk individuals seek life insurance.
I believe there is another approach available that presents a win-win situation for all concerned. One that has the potential to make the vast majority of genetic test recipients insurable and therefore protect them from discrimination, while also enabling insurance companies to reasonably manage the risk they assume from issuing such policies.
The underutilised component of the Australian life insurance industry’s current approach is the preventative value of genetic testing. In many instances, a genetic test can lead to proven measures that can reduce the risk of a disease or illness to the same risk as the general population. These measures can include lifestyle and dietary changes, medication, treatments, regular check-ups, testing and monitoring.
The strength of this argument is supported by a test case documented in the Medical Journal of Australia. A man with a genetic predisposition to colorectal cancer was denied cover for cancer by two major life companies. He then researched and presented evidence to a third life insurer that, by undertaking a yearly colonoscopy, his risk of colorectal cancer was the same as the population risk. However, this insurer also declined cover for cancer. It was not until the man took the matter to the Australian Human Rights Commission that the third company finally agreed to provide him with full cover. The insurer’s capitulation suggests that it was unable to provide the applicant with an actuarial, statistical or other basis for refusing cover for cancer.
It’s time for Australian life insurers to rethink their approach to genetic testing. Instead of penalising those who proactively seek out information on the status of their health, insurance companies should be helping their clients to do everything possible to use the results of medical and genetic tests to reduce their health risks and improve their health outcomes, thereby making them insurable.
Let’s take a look at the makeup of a standard life insurance premium. A certain percentage is assigned to the costs of administration, covering the capital required to support the life company, the profit margin and the advisors remuneration. The rest is covering the cost of claims, a portion of which relates to the risk of accident, while the rest relates to the risk of disease and illness covered under the specific policy. While there is less a life insurance company can do to influence the risk of accident, they can play a role in ensuring their clients take proactive action to reduce the risk of disease and illness.
Of the top 10 causes of death in Australia in 2013, the vast majority were lifestyle related. According to the United Nations, the combination of four healthy lifestyle factors – maintaining a healthy weight, exercising regularly, following a healthy diet, and not smoking – seem to be associated with as much as an 80 per cent reduction in the risk of developing the most common and deadly chronic diseases, such as heart disease, stroke, diabetes, obesity and some types of cancer. Further, the Cancer Council states that one in three cancers – 13,000 Australian cancer deaths per year – are preventable with lifestyle changes, while the risk of other cancers – breast, cervical and bowel cancer – can be significantly reduced via screening programs.
Which brings us back to the question of the premium. While medical and genetic testing have the potential to identify that an individual has a predisposition to a certain disease or illness, they can also be used to understand the other specific health risks that the same individual is less likely to suffer. Armed with genetic test results, big data and predictive analytics, it should be possible for modern life insurers to craft truly individualised cover. And here lies the key. The portion of the premium usually assigned to health risks less likely to be suffer could be redirected to assist the client to take proactive action to significantly reduce health risks identified through testing. With the assistance of the medical community, insurers could incorporate individually tailored, preventative programs – that might include lifestyle and dietary changes, screening and monitoring programs, medications and treatments – into the terms of life policies. As a result, the client would have a markedly lower risk profile, substantially better health outcomes and access to life insurance. And, in a gesture of goodwill that may help restore the industry’s somewhat tarnished image in the eyes of the community, insurers could extend appropriate cover to the limited few whose medical or genetic tests reveal an increased risk of an untreatable condition.
Importantly, this approach would eliminate the key disincentive for individuals to participate in genetic testing and medical research trials, which in turn would deliver higher participation levels and better health outcomes for the entire community. It would also encourage the open and honest exchange of health information between parties, which would decrease the likelihood of claims being challenged and/or policies being rendered invalid due to incomplete disclosure.
Sound idealistic or unrealistic? It’s not. Already, the precursors to an individualised, preventative approach to life insurance can be seen in the likes of the AIA Vitality program where the insurance company currently rewards its clients with points for finding out more about their health and taking simple steps to improve it. These steps might include visiting the gym, giving up smoking and/or using wearable devices such as a Fitbit to monitor their workouts. Clients are then able to use these points to claim discounts on their insurance premium, as well as other lifestyle rewards.
While admittedly at odds with the traditional notion of risk pooling, an individualised, preventative approach to life insurance is entirely consistent with the broader consumer trend towards greater customer-centricity and high levels of personalisation. Already, there are platforms available that feature the agile framework and modern architecture needed to enable insurers to reap the benefits of big data, predictive analytics and message-to-one customisation.
In the years ahead, life companies will employ a flexible, next generation technology base to meet their clients’ expectations for cover that responds directly to their specific needs and supports them to take proactive action to optimise their health outcomes and bring their risk back within the normal range. Although this may require an initial investment in system modernisation for some insurers, the returns from adopting a positive rather than a negative approach to genetic testing will be priceless. Not only will it enable life companies to significantly grow and expand their business through coverage of clients they previously only partially insured or turned away, it has the potential to positively influence the health outcomes of our society in a profound and lasting way.