Select Committee on Science and Technology Appendices to the Minutes of Evidence


Memorandum submitted by Genetics Group, Faculty and Institute of Actuaries

  1.  This memorandum has been prepared by the Genetics Group of the Social Policy Board of the Institute of Actuaries and the Faculty of Actuaries, the professional bodies for actuaries in the United Kingdom. In view of the short time available for its preparation, this memorandum has not been approved by the Social Policy Board, or by the Faculty and Institute Management Committee.


  2.  UK insurers offer the best terms they can and the central plank of consumer protection is, in fact, the informal one of competition. Insurers will not recruit or retain customers if they are more expensive than their rivals. This does not result in every insurer making an attractive offer to every member of the population. But it means that most members of the population can meet their insurance needs—even if it is in some cases by recourse to specialist niche insurers and on specially calculated tariffs.

  3.  There are however segments of the population that effectively cannot contract insurance because their risk of ill-health or death is so high as to render the contract impractical or its price unaffordable.

  4.  An insurance market, in the absence of price controls, also has the shortcoming (arguably) that disadvantaged groups are not subsidised.—For example, known cardiac risks will generally pay more for life insurance (although their health, employment status and financial plight may mean they are less able to pay).


  5.  In the absence of regulation insurers could be expected to be interested in genetic testing. Firstly, if it were possible to offer better terms to customers who had a certain result in a given genetic test—then this would advantage such customers and the operation of a free market would facilitate such a development. We do not have to explore the merits and demerits of this however, since UK insurers have committed to not requiring customers to take tests. Also, there is no test currently available that would make such a stark differentiation.

  6.  The more significant issue is that insurers instinctively (if they are operating on the competitive market model) would ask customers whether they have undergone genetic tests and what the results were. This is a natural extension of the conventional underwriting process whereby customers effectively declare all information that they (the customer) possess which could affect the insurers' assessment of the risk.

  7.  Clearly, if a genetic test were to become accessible and affordable and it allowed 30 year olds to identify that they would die before age 40—then it would be impossible for insurers to operate without taking such a test into account. If they did not, it would be tantamount to offering an 80 year old life assurance for a 30 year old's price.

  8.  It is understandable therefore that insurers are reluctant to surrender all rights to use the results of genetic testing. The Committee could perhaps explore whether insurers are concerned to protect such rights to contend with future genetic science, as yet unknown, or which of their concerns are real live ones today.


  9.  In 1997, the Human Genetics Advisory Commission, in a report entitled "The Implications of Genetic Testing for Insurance", recommended that "a requirement to disclose results of specific genetic tests would only be acceptable where a quantifiable association between a given pattern of test results and events actuarially relevant for a specific insurance product has been established.

  10.  The concept of "actuarial relevance" has been carried forward into the criteria of the Genetics and Insurance Committee (GAIC). Submissions from the insurance industry to the GAIC to request permission to make use of particular genetic tests, must demonstrate not only that the test in question has clinical relevance, but also that it is actuarially relevant.

  11.  In one sense, all information pertaining to the risk propensity of policyholders and prospective policyholders is relevant from an actuarial point of view. The actuary should take into account all available information about the group of people being insured, in order to recommend a fair premium rate for the group, and, subsequently, to ensure that the insurance company sets up appropriate provisions for the cost of the claims which can be expected to arise. This is necessary, both for the protection of the insurance company (and hence other policyholders) and for there to be fair treatment between different groups of policyholders.

  12.  The particular characteristics of individuals proposing for insurance can, to the extent that they are required to be disclosed, be taken into account by the insurance underwriter, in deciding on the premium rate to charge and on whether to accept the proposal on standard terms, to impose a premium loading (because of a perceived higher level of risk), to allow a discount (because of a perceived lower level of risk) or to decline to insure.

  13.  Age and sex will almost always be considered as actuarially significant characteristics, but so, according to the type of insurance, may be occupation, place or residence, current health condition, lifestyle, smoking habit, etc. Generally, a characteristic will only be used for setting differential premiums, or for informing the underwriting decision, if the presence or otherwise of the characteristic is deemed, on the basis of the evidence available to the insurer, to make a significant difference to the risk propensity, ie to the probability of a claim or the likely incidence of a claim.

  14.  Simple questions are usually asked in a proposal form about the proposer's state of health, past illnesses and treatment and, in some cases, about the age at death and cause of death of close relatives. In cases where this preliminary information suggests indicators that there could be a higher than average risk propensity, the underwriter may ask for a report from a doctor, or request a medical to be carried out. This would be more likely to occur for larger than average sums assured, which clearly expose the insurance company to a risk of a greater level of loss.

  15.  In practice, even most of the cases where some risk factors are present will be insured on standard rates. It is believed that some 95 per cent of proposals for life insurance are accepted on standard terms and only less than 1 per cent of proposals are declined.

  16.  The result of a genetic test would be significant from an actuarial point of view ("actuarially relevant" in GAIC terminology) if the knowledge of a particular result from the test would make a noticeable difference to the actuary's assessment of the risk propensity, of the order of magnitude which would be expected to lead to a premium loading or a premium reduction compared to the position without knowledge of the test result. In a more extreme case the test result might lead to acceptance of a proposal which might otherwise be declined or rejection of one which might otherwise have been accepted.

  17.  There is no unique criterion (or set of criteria) for saying whether a test result is significant. Genetic test results (and other disclosures which might be required of the prospective policyholder) may come anywhere in a spectrum from those which provide no information at all to affect the underwriting decision to those which introduce a totally new perspective on the risk from the insurer's point of view. As with all underwriting considerations, the issue will be of greater importance to the insurer if the sum assured is well above the average.

  18.  The GAIC have determined a trigger for actuarial relevance based on extra mortality risk of 50 per cent (ie the chance of dying in the relevant period is increased by more than a half again of the normally expected chance). This probably corresponds broadly with the level of extra mortality risk which would normally lead most insurers to consider imposing an extra premium.

  19.  In order for this level of extra mortality to be demonstrated, the results of appropriate research projects on subjects with different test results must be sufficiently robust to demonstrate that the presence of particular test results in a group of individuals can be expected to push up their expected probability of death by 50 per cent or more. This is in comparison with an average group of individuals, for whom there is no particular reason to suppose a high risk propensity.

  20.  In practice, the availability of such a test result to the insurer may not lead to a higher premium being charged than otherwise. This could be 1) because other information on the proposal form, or from a medical report, would have led to that level of loading anyway 2) because the sum assured is small, or 3) because the company's approach to the mutualisation of risk is such that it is prepared to accept some proposers with significant additional mortality risk on standard rates, as part of its broad underwriting strategy (most likely subject to some upper limits on sums assured).

  21.  The extent to which insurance companies mutualise risk is affected by what they perceive society's attitude to risk-sharing to be. Social security schemes usually involve a very high level of mutualisation of risk across the whole community. In the interests of keeping premium rates down for the majority of policyholders, and in order to remain competitive relative to others, insurers usually tend to restrict the mutualisation of risk to within groups of policyholders with broadly similar characteristics, eg the same age, sex and without any unduly high additional risk characteristics.


  22.  Under the GAIC process insurers must demonstrate that any genetic test they use is "actuarially relevant" as discussed above. This process has produced some benefits for customers and the insurers:

    (1)  It prevents insurers misinterpreting less understood genetic tests—an insurer might have, for example, declined cover because it had "doubts".

    (2)  It has brought clinicians, geneticists and insurance professionals together and reduced somewhat the fears the medical profession have (for example that patients become discouraged from undergoing tests).

    (3)  It has allowed time for realisation of the as yet limited implications of genetic testing in insurance—the impact has not been dramatic or revolutionary in nature.

  23.  The GAIC process should not however be regarded as solving all the issues:

    (1)  It does not lead to prescription of how an insurer will price insurance for a customer who is affected by a GAIC-approved genetic test. Indeed it would seem illogical if it did—since in non-generic matters insurers do not generally have their actions constrained in such fashion.

    (2)  It does not mean the following groups of customers are not "disadvantaged" in insurance:

      —  People with genetic conditions with a GAIC approved test;

      —  People with genetic conditions revealed to insurers in other ways (eg family history) although there is no GAIC approved test;

      —  People with a medical condition that is not considered genetic.

    (3)  In effect the GAIC process seems to protect a small minority of customers—those whose genetic condition is known to them via a test but which has no other revealed symptoms of which an insurer would be aware.


  24.  It is evident that modus operandi of insurers can cause considerable distress to people with deteriorated health. At the very time when they require to replace income for themselves, or provide for loved ones—the commercial actions of insurers can seem unhelpful, awkward and even discriminating. But this is by the nature of the UK's competitive market model.

  25.  Insurers have not had explicit social obligations placed upon them and they cannot be expected to follow some or other norm unless some framework is provided by regulation (which an insurer will know its rival competitors are also subscribing to).

  26.  Such social obligations of course could be placed upon insurers and there are different examples in different insurance markets around the world. But it is generally not a simple task. The more onerous the obligation, the more rigorous needs to be the framework and enforcement: especially to ensure such insurer meets its social obligation in equal measure to others.

  27.  The moratorium on insurers using certain genetic tests results and the ABI's voluntary abstention for genetic tests for normal-sized mortgage-related life insurance are examples of "lightweight" social obligations. As observed earlier they do protect a small minority of the population but the social protection afforded is not targeted in any coherent way.

  28.  It is clear that patient interest groups will campaign very cogently and convincingly on behalf of their members and the prohibition of insurers using certain genetic tests as an act per se may be of small benefit. But it will not solve the more deep-seated problem of economic deprivation associated with deterioration in health. While working towards one social policy objective, solutions proposed must not render inoperable the competitive market model for insurance.

  29.  We would close our memorandum with a useful example and pose a question. It is emerging that genetic tests can indicate a higher propensity for Alzheimer's Disease in some individuals. How then should society proceed if it wants to foster the private long-term care insurance market? If society permits genetic evidence to be used by insurers it could lead to a disadvantaged group (at least by price comparisons). On the other hand a prohibition could mean only the "at risk" take out insurance, which becomes expensive and then a wider market does not prosper. There are no easy answers we would suggest.


  30.  The actuarial profession in the UK expresses opinions on public interest topics, even though these may conflict with the views of some individual members of the profession or with the views of commercial clients in the industries which actuaries serve. A statement of the profession's position on Genetics and Insurance is posted on the profession's website ( A copy of this Position Statement is attached as an Annex to this Memorandum.

  31.  The actuarial profession would of course be very honoured to give further help to the committee as it tackles this difficult matter.

22 January 2001

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