Pooling gene data

Debbie Akers on privacy and the principles of discrimination when dealing with genetic data for insurance purposes

Is someone's genetic information sufficiently different from other medical information to justify it being treated differently?

The use of genetic data in insurance underwriting has attracted repeated attention in recent years. In some countries, the law prohibits the use of genetic test results in insurance underwriting. In the UK, the government and ABI agreed in 2001 a moratorium that generally prohibits insurers from using genetic information, with minimal exceptions. This is believed to be working well in practice, but several issues are still under discussion.

In the context of life insurance or annuity business, if genetic information indicates a material risk of significant future ill-health, it could help underwriters to quantify this and potentially reflect it in the terms offered to an individual. Insurance is about the pooling and differentiation of risks, and the general principle of fairness means that people pay a premium appropriate to the risk they bring to the pool. The principle of symmetry of information between the insurer and the insured is often important. However, in practice, the information available can be subject to various constraints, such as limitations in the range of questions, driven by commercial pressure and legislative controls.

There is an obvious conflict between the needs of insurers for symmetry of information and the perceived rights of the individual to privacy. Procedures will be in place to try to ensure confidentiality of any information provided, but allowing individuals to withhold information relevant to the risk because it is considered too personal can put insurers in a disadvantaged position.

Avoiding discrimination

Perhaps more pertinent than the question of privacy is that of discrimination.

Insurers need to differentiate risks, but how does differentiation differ from discrimination - a term that often has connotations of unfairness?

Definitions vary, but discrimination can be considered to occur if the different treatment has no objective and reasonable justification, does not pursue a legitimate aim or does not apply a reasonable relationship of proportionality between the means and the aim. On the other hand, differentiation is based on applying relevant data from a reliable source, which is used proportionately to establish a fair price.

When defining their approach to assessing different risk categories, insurers need to be mindful of the expectations of society. Even if the use of genetic information could be included in a fair and objective pricing process, there still remains a perception that genetic information is special and different and that it would be dangerous to create a 'genetic underclass' of individuals with 'bad genes'. When considering this, it is important to remember that there is already an 'insurance underclass' that struggles to obtain cover, or can only obtain cover on adverse terms. In pricing and reserving work, the actuary considers groups of anonymous lives, whereas the underwriter considers a named individual. For that person, their health is a living reality, and lack of access to insurance can have serious consequences.

Perhaps it is the combination of the consideration of fairness and the concept of fault that makes genetic information different. There are many aspects of lifestyle where people have a choice, such as smoking, diet and exercise, and these lifestyle factors can affect their risk of future ill-health. However, an individual does not choose their genes and cannot alter them by making healthier choices. Looking beyond genetics, it is important to remember that many serious illnesses are not determined by lifestyle. For example, someone with type 1 diabetes would be charged a higher premium for life insurance, so should someone else with the same risk of dying pay the standard premium just because their additional risk is identified by a genetic test? 

A matter of ethics

There is an important side question here: do people have a basic right of access to insurance; is it a 'social good'? Where an individual has dependants, if it is sufficiently important to provide for them in the event of death or disability, then perhaps there should be a guarantee of access to a minimum level of cover, regardless of health or genetics. If so, could this be a matter for the state to consider rather than the insurance industry? 

The principles of insurance are important, but insurers also need to consider the practicalities involved with charging the appropriate level of premium overall. Anti-selection is an important consideration. Prior to the availability of genetic testing, we insured people without knowledge of the additional risks, which can now be identified. Hence, as long as people do not anti-select based on their knowledge of their genetic test results, there is no need to change existing pricing approaches. However, the opportunity for anti-selection does exist and UK insurers do not currently know the extent to which it occurs in practice because of the restrictions around application form questions on genetics. This is different from the position on gender in the UK; we are no longer allowed to reflect gender in the price we charge, but we are allowed to collect this information from policyholders. Thus, we know the gender mix of our portfolio and can price accordingly. With genetic risk, we are denied access to the information, so cannot monitor what level of genetic risk we are insuring. This means that the anti-selective behaviour relevant to this risk cannot be monitored directly in the current environment, neither is it something that is easy to research either by examining human propensity or through underwriting and claims data. 

In general, perhaps a suitable framework needs to consider three questions: the extent to which genetic information does indeed indicate future risk; the degree to which it is necessary to reflect this in insurance pricing; and how fair it would be to do so.

These are some of the general social policy issues relating to insurance that have arisen from the development of genetic testing to date. Further genetic advances may generate additional challenges for the industry and indeed for the actuarial profession. There is now an IFoA genetics working party looking into these issues, together with consideration of any actuarial modelling work needed to quantify the impact of the risks.

• Sign up for the working party at bit.ly/2bYbCDL