CPD: Adviser briefing – genetic testing in life insurance

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Australia’s Moratorium on life insurer usage of genetic test results is due to be reviewed in 2022, ahead of a possible extension in 2024.

2022 review of life insurance genetic testing moratorium

In June 2022, Australia’s life insurers announced[1] their intention to cease their membership of the Financial Services Council (FSC) and form a new representative body, the Council of Australian Life Insurers (CALI).

In 2019 a Moratorium[3]  on genetic testing in life insurance was introduced in response to a growing chorus of concern from consumer advocates and medical experts, it was designed to mitigate the issue of ‘Genetic Discrimination’ by life insurers, by allowing consumers to apply for certain amounts of life insurance cover without needing to disclose the results of any genetic testing they had undergone.

Conceptually similar to Moratoriums introduced in the United Kingdom[4] (and more recently, Singapore[5]), the initial term of the Moratorium was set at 5 years, with an interim review to be conducted in 2022.

Ahead of that review taking place, this article is intended to act as a refresher for advisers, helping them understand the background to the Moratorium, the implications of genetic testing for consumers, health professionals and life insurers, and the developments seen in genetic testing since the Moratorium was first introduced.

Genetic testing: glimpsing the future

The Human Genome Project was initiated in 1990. Thirteen years and USD 3 billion later, the project had successfully sequenced the human genome. It was one of the major scientific achievements of all time; and it became a robust and reliable technology platform to explore gene disease associations. In much the same way as the cost of computer processing power reduced exponentially (Moore’s Law), so too did the cost of genome sequencing subsequently plummet (see Figure 1, below).

Genetic testing has revolutionised medicine now routinely used across all facets of health care, including prenatal and newborn screening, the identification of hereditary conditions, and the early identification of conditions linked to gene mutations. Our genetic make-up has also been shown to influence the way our body responds to diets, and the way we process medicines, leading to its use in guiding drug selection and dosage at an individual patient level.

In many ways, genetic testing allows us to glimpse the future, getting early warning signals about our health that we wouldn’t otherwise be able to detect, and allowing pre-emptive treatment. The most extreme example of this would be the women found to have mutations in the BRCA1 or BRCA2 gene and having mastectomies to reduce the risk of developing breast cancer (Angelina Jolie being one of the highest profile people to do this[7]).

The potential for genetic testing to save lives and billions of dollars in healthcare costs through early detection and prevention/treatment is thus enormous.

People are, understandably, curious to know their future, (and their past!), and as the cost of genetic testing has come down, so the popularity of home testing has surged.

Used for both ancestry and health testing purposes, the direct-to-consumer genetic testing market has surged in recent years and is now a multi-billion-dollar global industry[8].

But the ability of individuals to take this glimpse into the future creates an existential challenge for life insurers.

Information Asymmetry – the threat to sustainable life insurance

Underpinning the sustainable operation of life insurance is the concept of pooled risk, the sharing of risk across multiple people. It is this concept which makes insurance affordable. Equally important is the ability to underwrite, to ensure people admitted to the pool pay a price appropriate to their individualised risk profile.

The application of loadings, exclusions, or even denying coverage altogether, are all mechanisms available to equalise this risk amongst members of the pool, and ensure people are not paying too much, or too little for cover.

The sustainability of the pool will be threatened if one party (the life insured) knows something material to their risk of claim that they don’t share with the insurer. This puts the insurer at a disadvantage, which is why the rules around disclosure are so comprehensive and so important.

The widespread availability of genetic testing threatens to take this information asymmetry to a whole new level.

In simple terms, if a person has had a genetic test and knows that they are at an increased risk of serious disease (for example, cancer), then they have an increased incentive to take out life insurance. If they are able to keep that test confidential, it means they could get cover on terms and rates far more generous than they should strictly be eligible for.

This is called speculative adverse selection and is often invoked as being a likely outcome of limiting insurer access to genetic test results.

For example, in a report to the Canadian Institute of Actuaries[9] on the possible costs of a ban on insurer access to genetic test results, modellers assumed that 75% of individuals whose results showed a predisposition for serious disease would subsequently purchase an additional $900,000 of life insurance (compared with an assumed average before the test of $100,000).

The flip side is equally threatening for life insurers. People who find out they are at lower risk of serious disease may not take out life insurance cover at all. This means the pool is smaller, and overall average health of the pool is lower.

A corollary outcome – if such information asymmetry is allowed to exist – is that insurers need to adjust premiums up to allow for this potential adverse selection effect.

Understandably then, life insurers have fought for the ability to be able to access the results of any genetic tests an applicant may have taken.

The health professional view – Genetic Discrimination

Unsurprisingly, a strong counterview has been prosecuted by a number of stakeholders, including scientists, health professionals and consumer advocates.

Their argument, backed by research, is that people are so fearful of being denied insurance they are being deterred from having tests.  Indeed, a study[10] by the peak group Australian Genomics found that the worry of having genetic results passed on to life insurers was still deterring up to 10 per cent of people from proceeding with potentially life-changing testing. This fear of being discriminated against was also said to extend to the large-scale genetic testing conducted for research purposes – in essence meaning that vital health research was being stymied.

The advocacy of these groups included numerous submissions to the 2018 Parliamentary Joint Committee (PJC) Inquiry into Life Insurance and culminated in that Committee recommending that life insurers’ use of genetic test results in underwriting should be prohibited[11], at least in the medium term.

2019 Moratorium on Life Insurance

Ahead of any possible legislative mandate, and the understandable challenges, described above, this would bring for life insurance sustainability, the industry pre-emptively moved to adopt a self-regulatory approach, and in 2019 the FSC launched Standard No. 11: Moratorium on Genetic Tests in Life Insurance[12].

In simple terms, the Moratorium was intended to ensure people wouldn’t be denied access to life insurance purely on the basis of genetic test results, whilst at the same time limiting the exposure of life insurance companies to adverse selection. As such it was seen to balance the needs of both sides of the argument.

Under the terms of the Moratorium, life insurers can’t ask applicants to take a genetic test as part of their application and underwriting process, and nor can they request the results of any test the applicant has previously taken, provided the amount of cover applied for, and any existing individual or group insurance cover with all life insurers in aggregate, is under certain thresholds:

  • $500,000 of lump sum death Cover
  • $500,000 of total permanent disability Cover (TPD)
  • $200,000 of trauma and/or critical illness Cover
  • $4,000 a month in total of any combination of income protection, salary continuance or business expenses cover.

To mitigate the reluctance of people taking part in large scale testing for research purposes, tests taken as part of a medical research study conducted by an accredited university or medical research institution where the results are not provided back to individuals – either as standard practice or because the individual expressly requested not to receive the results – are excluded from these limits (on the basis that information symmetry and adverse selection is less of an issue).

Furthermore, individuals can provide test results that show good health and may allow more favourable underwriting.

The limits in the Moratorium apply at time of application and are not triggered if CPI increases take the sum insured over these amounts.

How does Australia compare with other jurisdictions?

The regulations governing insurer use of genetic test information vary widely around the world.

Some jurisdictions, including Canada and Portugal, have totally banned insurer access to such information (Portugal have even banned the use of family medical history information[13]). Others, including Switzerland, the UK, Germany, and more recently Singapore, have Moratorium type approaches in place – some legislated, some self-policed – where base amounts of cover can be applied for without needing to provide test results.

(Surprisingly, at the time of writing, New Zealand was yet to introduce any such system governing insurer use of test results.)[14]

Allowing for exchange rate fluctuations, the amounts of cover available in Australia under the Moratorium are roughly comparable with those available in Germany (where the death cover threshold is 300,000 Euros) and Switzerland (400,000 Swiss Francs), but low when compared with the UK (where the death cover limit is 500,000 pounds[15]).

Concerns have certainly been raised about the size of the Australian limits, with lawyer and genetic counsellor Jane Tiller[16] suggesting $500,000 in death cover “simply doesn’t move the needle”. Certainly, as average mortgages and household debt levels continue to grow, the adequacy of $500,000 as a limit can justifiably be questioned, and this may well be something that the 2022 review recommends changes to.

Results so far

Ahead of the review, the FSC recently went public with a summary of results which they believe show that the Moratorium is working.

In a media release[17], the FSC said that the life insurance industry understood the importance of genetic tests in improving health outcomes for Australians.

“When we established the moratorium on life insurance genetic test results back in 2019, we wanted to make sure that every Australian can take part in genetic research, or take a test individually, without fear that the result would stop them taking out life insurance”. Nick Kirwan, FSC.

From the start of 2021, the life insurance industry has been collecting genetic testing data received as part of life insurance applications for the specific purpose of monitoring the ongoing effectiveness of the moratorium.

Over the six months to 30 June 2021, a total of 846 applications for cover were received by life insurers which included a genetic test result[18], resulting in:

  • 77% where the genetic test result had no influence
  • 13% were positively influenced by a favourable genetic test result
  • 6% were over the Moratorium limit adversely influenced but terms offered
  • 3% were over the Moratorium limit adversely influenced with no terms offered
  • 1% influenced, due to the Moratorium, by an inadvertently disclosed adverse genetic test result
  • 0% below the Moratorium limit influenced by an adverse genetic test result.

(Under the terms of the Moratorium, people denied cover over the threshold on the basis of a genetic test result are able to reapply for cover under the threshold and have those test results ignored.)

Reviewing the Moratorium

In reviewing the Moratorium, the FSC (or possibly CALI), will consider its objectives, the cover levels, and the impact on other policyholders in light of the latest advances in the field of genomics and genetic testing.

This will inform the terms by which the Moratorium – currently due to end on 30 June 2024 – will be extended.

A spokesman for the FSC noted life insurance industry plans to gather feedback from consumer groups and work together with an expert panel of geneticists on assessing the ongoing effectiveness of the Moratorium, including how to raise awareness for people considering taking a genetic test or taking part in genetic research[18].

To ensure long term efficacy of the Moratorium, it will also be included in the Life Insurance Code of Practice, meaning it will be subject to independent oversight by the Life Code Compliance Committee, which will have the power to sanction members who do not comply.

Into the unknown

Both sides of this particular debate have merit. For insurers, the right to underwrite, and effectively discriminate against substandard risks, underpins a sustainable business model, where cover can be available at affordable premiums. Information asymmetry certainly threatens that. On the other hand, the idea that people would defer or avoid life changing genetic testing for fear of being denied insurance is also concerning.

Regardless of which side you take, one constant in both narratives is the uncertainty. And that uncertainty cuts both ways.

The world of direct-to-consumer home testing has been described as a ‘wild west’; such is the lack of regulation. Whilst some jurisdictions seek to police the availability and use of these tests (in France[20] there are penalties for using such tests), the reality of online shopping makes their use hard to limit.

Not all tests are government approved, and as a result their quality and efficacy are often called into question.

A 2018 study published in Genetics in Medicine[21] found that 40% of gene variants identified by direct-to-consumer kits were false positives. And some genetic variants that were called “increased risk” by the DNA companies were classified as benign and common by clinical labs.

Another unknown impact is the rate at which cures, and treatments are found for conditions. Survival rates for cancers continue to improve all the time. In the future, being predisposed to certain conditions may not in itself guarantee you will get that condition, or that you won’t be able to have it successfully treated if you do. Meaning the ability of sufferers to get cover may improve (the idea that in the future, life insurers may gladly cover those recovered from cancer, has been floated by various experts more than once).

The field of testing itself also continues to evolve.

The presence of individual markers may not in itself be as predictive as currently first thought, and it could well be that other factors need to present to ensure more robust predictability. In this respect, both the scientific communities and life insurance industry likely still have a lot to learn about how to interpret such results.

In the future, it’s no stretch to say product design, underwriting approaches and claims management practices may well evolve too as the collective knowledge and experience in this area grows.

 

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References:
[1] https://www.afr.com/companies/financial-services/life-insurers-abandon-fsc-as-commissions-fight-looms-20220622-p5avnf
[3] https://www.hgsa.org.au/hgsanews/fsc-announces-moratorium-on-genetic-tests-for-life-insurance
[4] https://www.abi.org.uk/globalassets/sitecore/files/documents/publications/public/2014/genetics/concordat-and-moratorium-on-genetics-and-insurance.pdf
[5] https://www.moh.gov.sg/resources-statistics/moratorium-on-genetic-testing-and-insurance
[6] https://www.swissre.com/dam/jcr:2bccf1e2-eaa5-4ca2-a416-f6dedcebe9dc/Genetics_Seeing_the_future.pdf
[7] https://www.canceraustralia.gov.au/about-us/news/angelina-jolies-surgery-reduce-her-risk-ovarian-cancer
[8] https://www.gminsights.com/industry-analysis/direct-to-consumer-dtc-genetic-testing-market#:~:text=Industry%20Overview,CAGR%20from%202022%20to%202028
[9] https://onlinelibrary.wiley.com/doi/full/10.1111/rmir.12159
[10] https://www.nature.com/articles/s41436-020-0809-2
[11] https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Corporations_and_Financial_Services/LifeInsurance/Report
[12] https://fsc.org.au/resources-category/standard/1779-standard-11-moratorium-on-genetic-tests-in-life-insurance/file
[13] https://www.swissre.com/dam/jcr:2bccf1e2-eaa5-4ca2-a416-f6dedcebe9dc/Genetics_Seeing_the_future.pdf
[14] https://anziif.com/professional-development/the-journal/volume-45/issue-1/genetic-testing-and-insurance-a-no-win-situation
[15] https://www.swissre.com/dam/jcr:2bccf1e2-eaa5-4ca2-a416-f6dedcebe9dc/Genetics_Seeing_the_future.pdf
[16] https://www.afr.com/companies/healthcare-and-fitness/meet-australia-s-brockovich-champ-for-the-genetically-discriminated-20210907-p58plz
[17] https://riskinfo.com.au/news/2022/02/24/new-data-shows-how-the-genetics-moratorium-for-life-insurance-is-working/
[18] https://fsc.org.au/news/media-release/genetics-moratorium
[19] Ibid.
[20] https://www.politico.eu/article/europe-eyes-new-rules-for-wild-west-of-dna-testing/
[21] https://www.forbes.com/advisor/life-insurance/genetic-testing/

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