Too much information?

(May 2007) At times, advances in medical science, diagnostics and insurance underwriting are at odds with one another.

Consider, for example, cases involving genetic testing or full-body scans. Such tests are becoming more prevalent and can affect an applicant’s ability to obtain insurance at a standard rating for the rest of his or her life. Increasing use of the technologies is creating a dilemma for advisors, clients and underwriters because, while an insurer can’t require an applicant to undergo genetic testing, if he or she has taken a test, the results must be disclosed to the insurance company.

Relative Decisions

My sister’s client, Susan, recently applied for critical illness (CI) insurance. Her mother and grandmother both died at relatively young ages from breast cancer and ovarian cancer. As a result of this family history, Susan was rated 250% by the CI carrier. It was explained to Susan that the rating was made because there is an inheritable gene in her family that can lead to various cancers; and that she had a 50% chance of carrying the gene. The insurance company claimed Susan was an increased risk and so would have to pay more for her CI insurance.

After the policy was issued, Susan decided to go in for genetic testing and find out for herself. The results came back negative. There was, in fact, no evidence she’d inherited the potentially deadly gene. After submitting the findings to her insurance company, Susan’s rating was reduced to 175%. She, however, felt that since she was technically at no greater risk for cancer than the rest of the general population, she should have been offered a standard policy. Who is right? It’s hard to know; and only the future will tell. Insurers currently claim genetic testing is not conclusive enough to make a complete determination of a person’s likelihood of developing an illness, and that family history still needs to be considered.

Several of my high-net-worth clients — senior executives at well-heeled firms — are offered annual full-body scans by medical organizations contracted by their employers. These scans minutely examine every nook and cranny, and the technicians who administer them claim that anything untoward will be discovered, no matter how minor.

In other words, the machine will pick up flaws in the human body that otherwise would have gone unnoticed — and under most circumstances the flaws will have no effect on the client’s mortality or morbidity rate. Unfortunately, once the problems are uncovered, the insurers’ medical underwriters have to take them into account.

Cautionary Tale

Jack, a highly paid mergers and acquisitions lawyer, is sent each year by his employer for a full-body scan and last year it picked up a spot on his liver. His doctor determined the spot was “likely nothing to worry about.” But his underwriter thought differently. It took the view the spot could develop into cancer, and therefore affects Jack’s mortality. It assigned him a rating of 300%. We argued with the underwriter and, in the end, Jack’s policy was sent to a re-insurer, which acquiesced and gave him a standard offer.

So, while there’s no doubt the ability to diagnose critical illnesses at early stages has been a boon to society, the insurance community still has to learn to deal with the advances in medical imagery and diagnosis. If everyone is going to stay sane, insurers will have to re-evaluate their medical underwriting processes in light of the new technologies and advances that are occurring daily. They must move into the 21st century.

This article originally appeared in Advisor’s Edge. David Wm. Brown, CFP, CLU, Ch.F.C., RHU, is a member of the MDRT. He is a partner at Al G. Brown and Associates in Toronto. “Insurance Insights” appears every other issue.

(05/01/07)