Will genetic test results be monetized in life insurance?

• Author: Torsten Kleinow,Angus S. Macdonald,Oytun Haçarız,R. Guy Thomas,Pradip Tapadar
• Published date: 01 December 2020
• DOI: http://doi.org/10.1111/rmir.12159
• Date: 01 December 2020

Risk Manag Insur Rev. 2020;23:379–399. wileyonlinelibrary.com/journal/rmir

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379

Received: 17 July 2020

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Accepted: 16 November 2020

DOI: 10.1111/rmir.12159

PERSPECTIVE

Will genetic test results be monetized in life

insurance?

Oytun Haçarız

1

|Torsten Kleinow

1

|Angus S. Macdonald

1

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Pradip Tapadar

2

|R. Guy Thomas

2

1

Department of Actuarial Mathematics and

Statistics, Heriot‐Watt University and the

Maxwell Institute for Mathematical

Sciences, Edinburgh, UK

2

School of Mathematics, Statistics and

Actuarial Science, University of Kent,

Canterbury, UK

Correspondence

Angus S. Macdonald, Department of

Actuarial Mathematics and Statistics,

Heriot‐Watt University, and the Maxwell

Institute for Mathematical Sciences,

Edinburgh EH14 4AS, UK.

Email: A.S.Macdonald@hw.ac.uk

Abstract

If life insurers are not permitted to use genetic test results

in underwriting, they may face adverse selection. It is

sometimes claimed that applicants will choose abnor-

mally high sums insured as a form of financial gamble,

possibly financed by life settlement companies (LSCs).

The latter possibility is given some credence by the

recent experience of “stranger‐originated life insurance”

(STOLI) in the United States. We examine these claims,

and find them unconvincing for four reasons. First,

apparently high mortality implies surprisingly high

probabilities of surviving for decades, so the gamble faces

long odds. Second, LSCs would have to adopt a different

business model, involving much longer time horizons.

Third, STOLI is being effectively dealt with by the U.S.

courts. Fourth, the gamble would be predicated upon a

deep understanding of the genetic epidemiology, which

is evolving, subject to uncertain biases, and cannot

predict the emergence of effective treatments.

KEYWORDS

adverse selection, genetic tests, life settlement, one‐shot gamble,

stranger‐originated life insurance

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This is an open access article under the terms of the Creative Commons Attribution‐NonCommercial‐NoDerivs License, which permits

use and distribution in any medium, provided the original work is properly cited, the use is non‐commercial and no modifications or

adaptations are made.

© 2020 The Authors. Risk Management and Insurance Review published by Wiley Periodicals LLC on behalf of American Risk and

Insurance Association

1|INTRODUCTION

1.1 |Genetic testing

Since genetic tests began to enter clinical practice in the 1990s their use by life and health

insurers in underwriting has been controversial (Joly et al., 2010).

In one sense this was perhaps surprising, and the reaction of life insurers at the time does

suggest that some were taken by surprise. For many years, life insurers had routinely included

family medical histories in underwriting. This could show an applicant to be at risk of an

inherited disorder. For example:

(a) A man whose father had died of Huntington disease was at 50% risk of having inherited the

gene mutation responsible for it.

(b) A woman whose mother and sister had died of breast cancer was at some risk of having

inherited a gene mutation that could lead to breast cancer.

The first example is relatively straightforward, because a mutation arising in one specific

gene is the sole cause of Huntington disease (Bates et al., 2002). The second example is com-

plicated, because only a small proportion of breast cancer is caused by inherited genes, and

there is more than one candidate gene (Eeles et al., 2004). This family history could have a

genetic origin, but it could also have occurred spontaneously.

Genetic testing, meaning the direct examination of the DNA sequence, appeared merely to

resolve the ambiguity inherent in knowing only the family history. Both individuals above

could learn, definitively, whether they had or had not inherited a mutation responsible for their

family history.

1

What life insurers had perhaps failed to anticipate, in the 1990s, was the extent to which

genetic test results would come to be regarded, in many quarters, as worthy of some legal

protection against being used as a basis for discrimination. From the perspective of insurers, the

rationale for this may not be obvious (and hence the controversy), but the strength of public

sentiment is undeniable. See Prince (2019) for an excellent account of the policy debates and

outcomes that have emerged in the UK, Sweden, Australia, and Canada. Broadly speaking, in

all cases there has been pressure to bar insurers from using genetic test results, counter‐pressure

from insurers, and a variety of outcomes. Perhaps the most salient example is the UK, because

government and insurers quite soon reached an accommodation, which has been stable for

nearly 25 years.

1.2 |Adverse selection

Claims by insurers to have a “right to underwrite”(see Thomas, 2017 and references therein)

turned out to have limited traction (see Prince, 2019) so one of the main reasons advanced by

insurers to be allowed to use genetic test results was their exposure to the risk of adverse

selection, if they were not.

1

This is broadly true of the Huntington example, but to a much more limited extent of the breast cancer example, for

reasons which need not detain us.

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HAÇARıZET AL.