The Government’s review can be summed up as follows. Insurers are happy with how the existing code works. The Government has several strategies that will significantly increase the amount of personal genetic data available. Insurers want to keep a close eye on how this might affect them going forward.
It all seems so sensible, yet dig a little and the picture starts to look less rosy. I’m not saying that the Government shouldn’t want to increase genetic testing, nor that insurers are wrong to want to monitor the implications. I am saying that the lens through which these developments are being viewed is painting a picture that is less reflective of the real world than people may think.
Firstly, it’s worth reading this article from 2020 in which I critique the code as it is called. I highlighted six areas of concern about the code, but for me, these three really stood out...
- It covers underwriting but not claims, marketing or counter fraud. That’s why we’re seeing legal firms exploring the use of genetic data in the settlement of large loss injury claims. They are because they can.
- The code is both voluntary and has a default of existing law, which means that, in the event of the code being withdrawn, insurers would expect to see whatever data (genetic or otherwise) they think reasonable.
- The drift to personalisation is underlying the increased pressure on insurers to gain access to as much information about consumers as possible. Current trends in the market all point to this pressure continuing to build. One of the consequences that insurers are preparing for is in relation to this code.
Are Concerns Justified?
At the heart of insurers’ concerns is anti-selection, which results from an information asymmetry between prospective insureds and insurers. Insurers are concerned that genetic tests would give prospects knowledge of them being a higher risk and so cause them to buy more cover, thereby producing more claims than insurers anticipated.
What has interested me for some time is the extent to which anti-selection is actually happening. In 2019, a research paper was published that looked at the ethical, legal and social implications of genetic testing in insurance. Their conclusions cast doubt on whether consumers actually act as insurers’ fear.
“Overall, the variance in the literature suggests no widespread agreement on the impact of genetic tests on insurance purchasing behaviour and, therefore, anti-selection, and that any evidence that there is an impact is based on studies with small sample sizes and focused on diseases with high penetrance and few preventive measures.”
Let’s at this point remember what I said earlier – the recent Government review found that insurers were happy with how the code is currently working. The market was managing with the level of information asymmetry that they see in the code. Perhaps there’s a reason for this: researchers are not convinced that it’s actually happening to the extent that insurers should worry about it.
So why might this be the case? What is causing anti-selection to not emerge in the way that the market worries itself so much about? The 2019 paper examines this in some depth, which I’ll summarise with these six points, split between internal and external barriers.
- Avoidance and coping mechanisms that people use when confronted with potential threats to their health. A genetic test may well trigger negative emotions that people deal with through coping behaviours like avoidance.
- Poor understanding of risk, causing people to just not know what to make of their test results. Levels of health and financial literacy can often be low, causing people to be guided by a perceived level of risk rather than the actual one.
- Risk perception and environmental factors, in that test results currently have only limited predictive value, which can be influenced by individual characteristics, prevention options and how people live.
- The financial cost of extra cover, resulting in people simply not being able to afford extra cover. One possible explanation for this is the inter-generational wealth effects of having a parent with a genetic illness.
- Knowledge of a complex system, in that people may not know enough about the insurance system to be able, as insurers describe it, to ‘exploit’ their information asymmetry. They are often wary about taking financial advice and find the hurdles to taking out cover off-putting.
- Low levels of financial literacy, which leads to insureds struggling to know what cover to buy and how much to buy. In the researchers’ opinion, it could be the case that“…the opportunity costs associated with purchasing insurance as a result of a genetic test are simply too high and forego it altogether.”
Do we need more research then to confirm the nature and extent to which these hurdles are influencing consumer behaviour? I think we do need more research, but importantly, it needs to be research that recognises the bigger picture.
Insurers are worried about information asymmetry, but as this article highlighted, there’s a case for believing that it is currently acting both for and against insurers’ interests. Alongside anti-selection could lie inverse selection. So if one is going to be researched, then so should the other. Insurers may not like this, but ultimately, it is in their long term interests for a clearer picture around selection to be built up.
The core point is this, and I’m writing it in this way because that is how those challenging the sector are likely to frame it (I’m just delivering foresight!). Insurers are concerned about anti-selection. Consumers and policymakers are concerned about stratification. The two are of course very linked, by how insurers make use of the ever larger amounts of data that is now being produced, and by the rapid pace at which scientific developments like polygenic risk scores and epigenetics are happening. Rights of access to something cannot be separated from what is done with what you then have access to.
Time for Change
I’m going to end with a call from the researchers that particularly chimed with me. They conclude with a call for…
“…in-depth and focused discussion and consultation with the various stakeholders involved, …in light of the complexity of the issues arising regarding fundamental practices and principles of the industry, and with a view to achieving the correct calibration of competing interests (between the insurer and the customer).”
At the moment, the consultations and discussions taking place are not catching all of the issues involved. That’s partly because they revolve too much around health policy and not enough around market practices. And partly because there’s too little challenge involved.
As I said recently in my paper for the Institute and Faculty of Actuaries on fairness, “better to engage with the debate rather than avoid it and have it come back and bite you later.” The question then becomes: how is the best format / arrangement for that debate?
This is the paper around which a lot of this article has been built...
"Anti-selection & Genetic Testing in Insurance: An Interdisciplinary Perspective" (June 9, 2021). Dexter Golinghorst, Aisling De Paor, Yann Joly, Angus Macdonald, Margaret Otlowski, Richard Peter, and Anya Prince ; Journal of Law, Medicine, and Ethics, Forthcoming, U Iowa Legal Studies Research Paper No. 2021-41, Available at SSRN here.