Money: Gene tests dilemma for insurer

Scientists mapping the human genome hope to find what genes cause what diseases and develop cures.

But this ground-breaking technology presents a huge dilemma for insurers.

Sovereign risk product manager Michael Hewes says genetic testing is the biggest change the life insurance industry has faced.

The question being asked is: should life insurance companies have access to a person's genetic information to help them assess the risks?

To understand the issue, it is worth stepping back in time to consider the origins of insurance. Traditionally, it was about people pooling all their risks and paying equal premiums, sharing the risk.

Over time, insurers have developed ways of estimating an individual's risk, then levying the appropriate premium.

There is a standard premium, which does not get lowered, then "loadings" are put on top for people judged to be higher risks than average.

With the help of genetics, insurers will get a more sophisticated tool to help them to screen out the risks - that is the people - they do not want to cover.

Under this scenario, the idea of everyone being insurable becomes questionable.

If an insurance company knows you have a gene which could potentially set off a disease or condition it would have to pay out on in future, then it would say no to your proposal or levy a very high premium.

There is a view that genetic information should be treated differently from other medical data because it provides information only about susceptibility to diseases. Just because you have a gene related to a particular condition does not mean you are inevitably going to develop that condition.

Critics also say it would be unfair to discriminate against people on the grounds of their genetic makeup because they cannot avoid the genes they were born with. Privacy is also an issue.

On the other side of the fence are those who argue that genetic testing is just another tool for helping evaluate the risks.

One of the key tools insurance companies now use to assess individual risk is questions about family history and lifestyle.

For instance, smokers have a higher probability of developing many illnesses, therefore they will pay a higher premium than non-smokers. Likewise, if one of your parents died of a heart condition at the age of 40, it is more than likely that a loading will be placed on your premium.

The big plus is that people who can show, through genetic testing, that they are free of some of these genes could get a reduced premium.

However, it is not likely that such testing will determine whether an individual will actually suffer from one of these conditions, or that it will tell an insurer when a person will die.

"Underwriting is an art, not a science," AXA New Zealand head of client services Robyn Alston says. "Predicting when someone is going to die is very difficult."

Added to that are all the events that can come out of left field, such as accidents and infectious diseases.

She says cost may be the other problem with genetic testing.

The Investment Savings and Insurance Association's (ISI) position on genetic testing is clear at the moment and in line with countries such as Australia and Britain.

"An insurer will not ask for a genetic test as part of the underwriting proposal," ISI chief executive Vance Arkinstall says. "But if you have had a genetic test, they may ask to see the result."

Mr Arkinstall argues that insurance companies should be put on a level playing field with the person wanting insurance.

"Insurers should have the same information for underwriting the risk as an individual has for proposing the risk."

Also, he points out that insurers will not offer lower than standard premiums to applicants with favourable genetic test results.

He says this position complies with the insurance guidelines in the Human Rights Act.

Insurers in New Zealand are comfortable with this position.

Mr Arkinstall points out that testing may have some benefits.

"Genetic testing many in fact provide a much more accurate assessment and insurers may be able to offer better terms. There is the great possibility that a number of people may be better off."

But he also acknowledges the other side of the argument: "It may create a group of people who couldn't be insured."

The choices for the bad risks are that they would either become uninsurable, creating a whole disfranchised class, or they may have astronomical premiums.

That raises the question: will insurance companies take on the risk, or will it end up being left to the Government?

Governments, particularly left-leaning ones, have over the years established businesses to look after the part of society that cannot afford certain services.

The Public Trust was set up to provide a will-making service for people who could not afford one, and even to this day it is not legally allowed to charge for writing a will.

Part of the social objective of the planned People's Bank is that it will provide services to those who either cannot afford to use a bank, do not have a local bank branch or are simply rejected as customers by the big, commercial banks.

One thing the issue of genetic testing does highlight is the importance of full disclosure of information to an insurer.

Strategy Financial Services director Graeme Lindsay says it is vital that every piece of information, no matter how seemingly small or irrelevant, is disclosed.

Sometimes this can be difficult, as proposal forms can run up to 12 pages and ask all sorts of questions which require a person to trawl back through medical and family history.

His advice is that if you remember something after sending off the proposal form, you should put the new information in writing and post it to the insurance company.

The cost of non-disclosure is that your claim may not get paid, so all the premiums have been wasted.

It is not known how many claims are disallowed each year because of non-disclosure, but it does happen.

Aon adviser Brian Klee agrees that it is important people fully disclose all the information, but he says there is also a responsibility on the insurers to ask the right questions.

"Now they tend to use broad catch-all questions, rather than specific ones."

* Philip Macalister is the editor of online personal finance magazine Good Returns. He can be contacted by e-mail on philip@goodreturns.co.nz