Genetic testing could increase the cost of claims

The Actuaries Institute has claimed that the life insurance sector shouldn't ignore genetic testing, which has the potential to cause an increase in the cost of claims and destabilise the sector.

The report Genetics – A Testing Time for Insurers states that lower costs and an increased public interest in health and ancestry are driving more widespread genetic testing, with specific information being gleaned that could impact the life insurance sector.

Genetic test results at the ready mean that consumers may choose not to disclose any health risks they discover in the tests, or they could withdraw from life insurance after finding they are unlikely to suffer from certain diseases.

The report claimed that anti-selection is likely to occur when those who discover an increased risk of future disease secure life insurance cover at a rate lower than their risk would imply. Insurers might need to increase premiums to cover extra insurance claims cost, which has the potential to cause those without health risks to exit the insurance pool, which would force premiums higher.

The report says this creates a tension between nondiscriminatory practices by insurers (providing insurance to as many people as possible) and sustainability. 

The paper says that genetic testing is more likely to be an issue in the retail life insurance industry, since any cover secured via direct or group life sectors tends to eliminate the requirement for disclosure of medical information. This means genetic testing may have more of an impact on voluntary retail cover or increased cover sought via superannuation's group insurance. 

One of the authors of the report, Jessica Chen, BT Financial Group's director of insurance and finance, said the growing use of genetic testing by members of the public is understandable, especially if the tests help them make informed choices about their health and lifestyle.