News eDaily22 May 2017

Australia:Genetic testing threatens life insurers

22 May 2017

Genetic testing by people at large could lead to a spike in life insurance claims and hit the profits of life insurers, according to a study by the Institute of Actuaries of Australia (IAA).

The study predicts that if 2-5% of the population underwent genetic testing, claims against insurance policies could rise by by 7-17%, triggering a 3-8% decline in profits if all the costs were absorbed by insurers, reported The Australian Financial Review.

"Whilst predictive genetic testing is not an immediate threat to life insurance, it is an area that is fast developing and if such testing were to become widely adopted it is likely to impact the industry," said the IAA's Jessica Chan, a co-author of the report.

Genetic testing would give those tested a picture of their health risks, which life insurers would not necessarily have access to, Ms Chen said.

Insurance claims are expected to rise as a result of genetic testing because self-selection by customers is likely to occur. Individuals who discover they have a low risk of succumbing to illnesses such as heart disease and cancer will be tempted to allow insurance policies to lapse. Individuals with higher risks of contracting debilitating diseases will be more motivated to purchase policies.

The difficulty for insurers is that most genetic testing is 'direct to consumer' and often not in Australia, so it is difficult for companies to determine whether policyholders are being truthful if they deny having had a test.

Currently, only about 0.5% of the population is thought to have had a genetic test to determine the likelihood they would contract a number of common diseases, but the proportion is expected to rise as the cost of the service falls.

 

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