Early diagnosis presents challenges to the life industry

Newer technologies which allow us to screen for and detect diseases at an earlier stage have become a pillar in the area of prevention. Screening involves finding what one would call sub-clinical disease: Disease that has not manifested itself by way of signs or symptoms, but that once detected allows an individual to change his or her lifestyle and ultimately life course.

Early disease detection should be welcomed by life insurers as overwhelmingly good news, because it increases longevity and reduces the risk of mortality. But from a life industry point of view there are two aspects which make early detection problematic.

Firstly, detection can result in non- or under-disclosure of clients’ risks. Secondly, living benefits – particularly those available through critical illness products designed to pay for the diagnoses of a condition – end up paying more than expected and more frequently.

Screening can be done to pick up a variety of sub-clinical problems including – via genetic tests – the increased likelihood of a disease that has not yet manifested. Gene tests used to be unaffordable, but now someone can have their entire genome mapped for a few hundred dollars.

Genome mapping highlights gene abnormalities that could increase the risk of getting a certain disease. An even worse case for insurers is that they "flag” gene abnormalities that certain complex critical illness products will actually pay out on! Technology has created a window for anti-selection. Individuals can take out maximal sums assured and claim almost immediately once a second "official” test is shown to be positive.

Existing product design might have intended to pay a high sum for a diagnosis of a disease based on the fact it would require costly treatment or would lead to inevitable progression and perhaps disability and premature death. Insurers will still pay for the diagnosis, but due to (much) earlier detection, the budgeted costs and outcomes are less than previously thought. The payout will therefore be disproportionately high in comparison to the need.

The insurer will also pay more frequently for the disease than was originally priced as screening will pick up substantially more cases – a subset which would otherwise have gone undiagnosed. Good examples of this are the introduction of prostate specific antigen (PSA) screens in the late 1980s and the spike in very early thyroid cancers due to incidental thyroid ultrasound in Korea.

Insurers can approach these challenges in a variety of ways:

• In terms definitions, one could require certain treatments or permanent impairment rather than a diagnosis only. Exclusions could remove very early disease from cover (much like SCIDEP’s early prostate exclusion), while a tiered critical illness product would reduce "overpayments” in the event of early stage disease detection as well as reduce the cost of the product;

• Product design could introduce a deferment period which will not allow cancer claims in the first three or six months. This will reduce anti-selection, though the competitive environment will probably prevent this from happening;

• Underwriting would have to focus more intensely on family history and insist on as many medical reports as possible; and

• Implement heightened controls at claims stage. Early claims, particularly for cancers, should trigger a higher index of suspicion and in turn lead to a thorough investigation of non-disclosure and anti-selection.

The risk in adjusting the life, dread disease and critical illness product life cycle to accommodate innovations in disease diagnosis is that it will negatively impact on the consumers’ skewed perception of the industry. Insurers will have to carefully consider any decisions to modify their terms definitions, product design, or underwriting and claims procedures.