Life insurance in the age of DNA testing

Advisor.ca is proud to congratulate Yves Bonneau, Editor in Chief of our Quebec affialiate Conseiller.ca, on winning the Kenneth R. Wilson (KRW) Award for Best Editorial in 2010. The KRW Awards recognize the best in Canadian business press journalism. Here is his Gold Award winning editorial:

Slowly but surely, genetic testing on humans is making its way into the medical community. A very valuable tool, it helps prevent disease, is very useful in high-risk pregnancies, and guides people towards a healthier lifestyle.

Many years ago, when insurance companies were in their infancy, the question of risk was, to say the least, an inexact science.

The largest mutual life insurance company in Europe was going through very difficult times: competition was fierce, bankruptcies swept the industry, many jobs were highly dangerous by any standard, and pandemics were killing people by the thousands.

For nearly 10 years, the Life Insurance Company of Scotland, founded in 1825, more or less made its way through these trying circumstances. Then, with the arrival of businessmen and influential investors who initiated a major restructuring, certain rules concerning commissions were changed. They began paying commissions to other life insurance firms (reinsurance), banks, and agents who recruited new policyholders. At the same time, the company adopted Norwich Union’s annuity tables, which were considered more rigourous, and they began urgent discussions about the risks posed by the cholera epidemic then sweeping the country. Suffice it to say that life was far from easy, and insuring it involved a risk that was difficult to get a firm handle on!

On April 23, 1832, after having reorganized the company, and with a view to putting the past firmly behind them, they decided to give the firm a new name that would reflect the type of risk they would henceforth take on with the people they insured—a name that would convey the ideal risk, that of a person living a “healthy adult life” in the United Kingdom with “a moderate lifestyle and regular employment free from hazards.” In other words, a standard life.

The following year, in 1833, The Standard Life Assurance Company established itself in Quebec. So much by way of history, but here is where the future could meet the past.

This relentless pursuit of the standardized ideal was reiterated last month when a group of academics from Melbourne asked the Investment and Financial Services Association to indefinitely suspend the practice of having insurance companies use genetic tests as a way of measuring the risk of persons to be insured—in line with the example of the U.K., where such a voluntary ban has been in force since 2001 and will remain in effect until 2014, although nothing says the rules of the game will not change by then.

Meanwhile, the Australian insurance industry categorically refuses to deprive itself of access to information contained in DNA tests used by individuals for personal reasons, as in the case of fertility treatments.

Scholars believe, with reason, that the use of this information in the context of insurance coverage could in the long term create a kind of psychosis that would cause clients to flatly refuse any genetic test, for fear that the result would make them uninsurable, even if these tests could end up saving their lives. Nonetheless, the Australian insurance industry did not budge. If an individual has already submitted to a genetic test, insurance companies want to be able to see it.

For the past three years, the number of genetic tests taken by Australians has more than doubled and continues to rise. Catching the scent of a good business opportunity, the NIB insurance company began to directly offer personal genetic testing to their clients, a first in the land down under. NIB says their aim in offering this service at half the normal price is to give their clients a way to better understand the health risks they face and in this way help them manage and contain their potential for illness.

The company’s CEO, Mark Fitzgibbon, said he has himself undergone the test and believes clients who do the same will be better able to improve their “behavioural health.” “Helping policyholders stay healthy is perfectly justifiable for obvious financial reasons,” he said in an interview.

Within a decade, all insurance brokers should be able to obtain this type of information, which will help them make better decisions, the NIB boss said.

Observers argue that these tests, carried out by the American firm Navigenics, could lead to premium increases or to the systematic refusal of coverage to those with genetic predispositions to certain types of illness. Similarly, there is also a fear that advisors may be roped into the test process.

A study led by the University of Sydney has identified 48 cases of genetic discrimination, 46 of which were of insurance companies discriminating against clients.

For now, Canadian insurers have adopted the same policy as their Australian counterparts concerning the use of genetic information when a client gets a DNA test, and tests of this kind are still rare. However, we need to be aware that this reality could arrive sooner than we think, and prepare ourselves to call out its practices.

Advisors could once again find themselves caught between a rock and a hard place. In this case, will they have to defend themselves, their clients, or both?

This column originally appeared on Conseiller.ca. Translated by Dean DiSpalatro.