When Life Insurance and Genetic Testing Collide
Providing insurance companies with genetic profiles may one day be necessary.
The mapping of the human genome represents major advances in the fields of science and health, while carrying with it social and economic impacts that extend well beyond the laboratory. An individual's genetic information could have major implications in his or her daily life—procuring employment, obtaining a mortgage, or adopting a child. Although that time may be years away, researchers are exploring these possibilities and the potential uses or abuses.
The life insurance industry provides an example of the complex issues facing society elicited by advanced genetic knowledge. Mattias Polborn, LAS assistant professor of economics, says that while the sequencing of the human genome is not economically relevant in and of itself, it may become so as genetic testing improves and becomes more accessible to the average consumer. A case in point is with term life insurance, which provides coverage for a specific period of time, usually from one to 30 years. Term policies provide a death benefit only if the insured dies during the term.
Studies by Polborn and colleague Mike Hoy of the University of Guelph reveal that although today there are solid economic arguments for preventing insurance companies from obtaining access to genetic information, in 15 or 20 years that might not be the case. The tests currently available are specific to rare, often cataclysmic genetic disorders such as Huntington's Disease and cystic fibrosis. Finding out that one is not a carrier of this small number of rare genes is not necessarily indicative of future health, and therefore will not adversely affect the term life insurance marketplace.
As testing techniques improve, however, they will be better able to detect a predisposition to more common, statistically significant ailments, such as cardiovascular disease or common forms of cancer, and the results may include a bevy of health–related information.
If insurance companies are not allowed to request such information, which by then may be quite detailed, it may cause a state of what economists call asymmetric information—a situation in which one party to a transaction has more or better information than the other party. Insurance economists are critical of asymmetric information, says Polborn, because it usually causes the cost of coverage to spiral upwards, which is bad for the market.
A likely scenario starts with the insurance company setting what it deems to be an average price. Those whose genetic tests suggest that they are at a lower risk of dying during the term period might decide the price for the insurance is too high. That would make the pool of consumers who do choose to buy the coverage a riskier proposition than the average pool. The insurance provider may then raise prices, which would cause more low–risk consumers to drop out, and so on.
"Another standard model in insurance economics actually says that if you were to prevent insurance companies from getting this information and using it, it would just harm the low–risk types," he says. "It would not help high–risk types. It's basically saying that the low–risk consumers would have to prove that they are low risk by only taking a very small insurance policy."
Providing insurance companies with access to these genetic profiles—an idea that remains highly controversial—may become necessary. If testing improves but government regulation prevents insurance companies from obtaining genetic profiles from consumers, it may potentially cause a situation of asymmetric information. Term life insurance "would be much more costly and the market might disappear," Polborn says.
In the United States, no federal legislation directly addresses the issue of genetic testing and life insurance. However, it is a hot topic in British Commonwealth nations such as Australia, Canada, and the United Kingdom itself.
"What might be the more affected market is health insurance, but [those countries] don't care about the health insurance market because that is state–provided anyway," Polborn says. "There is no discrimination likely to incur in that market. That's why these countries focus more on the life insurance market."
Laura Weisskopf Bleill