Genetic testing: friend or foe to life insurers?

Gareth Friedlander, Head of Research and Development at Discovery Life

Technology has taken root in every aspect of our lives. From drones, self-driving cars, artificial intelligence to data analytics, it is shaping the way we live and causing a shift in the way insurers anticipate and price risk. No technology could have as big an impact in the future as advancements in genetic testing and gene-editing technologies.

With the cost of sequencing an individual’s genome falling exponentially, genetic testing has become integral in diagnostic, predictive and prescriptive medicine. By sequencing genes, doctors can identify the exact diagnosis and prescribe treatment that is personalised to the patient’s DNA – maximising the effectiveness of the treatment. Genetic testing also allows for early identification of the risk for diseases and for early preventive action.

Genomics and life insurance

From a life insurer’s perspective, genetic testing presents both challenges and opportunities.

At a high level, greater affordability of and access to genetic testing that identifies genes associated with certain illnesses may affect an individual’s perception of the need to buy or alter disclosures for life insurance. In addition, information from genetic testing can provide individuals with increasingly accurate estimations of their future health and likelihood of certain illnesses. This knowledge could drive insurance lapse and re-entry rates and lead to increased anti-selection risk – buying cover when the risk is greatest.

From an underwriting perspective, if insurers have access to genetic test results, they can price insurance more accurately, and provide access to personalised and preventive treatments before conditions progress to paying out a claim. However, insurers could also face the situation where clients do not disclose their results at application stage – leading to anti-selection risk. This goes against the fundamental principle of underwriting: ensuring that both the insurer and applicant have the same health-related information so that premiums reflect the degree of risk.

Some concerns presented

These concerns have been validated by the Canadian Institute of Actuaries, suggesting that genetic testing results significantly affect decisions about purchasing life insurance. Moreover, clients are less inclined to disclose the test results to the insurer.

A further concern is the accuracy of the direct-to-consumer tests by new or unapproved companies. Recent studies into the accuracy have identified stark variability among predicted risks due to diverging estimates and the way each company determined the average risk1. These findings illustrated the need for a regulated standard for genetic testing in the life insurance industry to address validity, safety, and clinical utility of genetic tests.

Opportunity in genetic testing

In South Africa, genetic screening tests will be offered to client medical schemes in the future. These tests, which will be performed by 23andme based in Silicon Valley, will sequence the whole genome to ensure accuracy and definitive results.

At the moment there is a benefit that pays for cancer cells to be sequenced. This helps identify the most effective treatment regimen for individual clients with cancer – increasing the chances of the treatment working.

From a financial adviser perspective, a better understanding of a client’s risks will, in theory, enable better advice. However, genetic testing introduces a number of ethical and practical considerations. For example, if a client’s genetic test reveals a gene associated with a particular condition, the adviser would probably suggest life insurance with good protection against this condition. However, if the results are not accurate or the client does not disclose the results, the adviser could land up providing inappropriate advice, leaving the client with inadequate cover.

Despite the relative infancy of genetic testing, it is clear that its potential value for consumers and insurers outweighs any obstacles. The challenge for the life insurance industry going forward is to ensure that consistent, regulated standards exist around genetic testing and its role in underwriting, product design and financial advice.