Insurance firms facecost of genetic secrets

October 25, 1996

People who know they have adverse genetic traits, but are not compelled to declare it to insurance firms, could expose the industry to extra costs, according to a study by Angus Macdonald of Heriot-Watt University.

Dr Macdonald said that the so-called "adverse selection" scenario could mean that even though an applicant might be genetically prone to a terminal illness they would be treated as an average risk by the insurance firm.

The most costly aspect of adverse selection for insurance firms is likely to arise when people with adverse genetic traits take out higher than average insurance. For average insurance sums, the extra cost to insurance firms is likely to be much smaller.

Dr Macdonald, based at Heriot-Watt's actuarial mathematics and statistics department, stresses that his study is based on "extremely crude calculations", adding that very little data is available to make any firm predictions. He says: "If society decides that insurers should not have access to genetic data then it would seem reasonable to limit the sums insured such that people wanting above average insurance would have to declare any such information."

If people do not declare adverse genetic data the clear implication is that premiums charged by insurers will be lower than if the firms had the information. An analogy is a car owner not required to declare their driving record to the insurer. Dr Macdonald says: "It is a problem for insurers and by its nature a form of discrimination. But society accepts some kinds of discrimination but not others - smokers, for example, do not get much sympathy."

Dr Macdonald has also tried to predict the extra costs to the insurance industry if society decides that firms must not use any genetic data. He estimates that insurers' payouts for death claims might increase by 10 per cent rather than by 100 per cent.

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