If you have a test taken, to see if you have genes that show you may be at risk of developing a life threatening disease, the British government allows your insurance company to look at the results. Governments in the rest of Europe ceased this as they feared the results could be used by insurers to perhaps increase premiums or even refuse cover altogether.
Unless the insurers develop a voluntary code preventing the use of test results, MPs this week have called on the government to enforce a two year suspension on using them.
Should the test results be private?
The government is concerned that the insurance industry could collapse if genetic test results were kept private.
Why would it collapse?
A major problem in the insurance industry is what the textbooks call “adverse selection”. The likelihood of somebody buying life insurance, if they know they are going to die earlier than expected, is high. They want to know that their families will get some financial help when this happens. If a large amount of high risk people buy insurance they may not live long enough to cover the payout with their premiums.
Therefore, to make up for losses insurers will have to raise premiums thus having a negative effect on how insurance looks to a person with a normal life expectancy. Soon only high risk people will buy insurance and the good risks driven out of the market altogether. Eventually the market would crumple as it is only lucrative when the high and low risks are shared.
Is this happening?
At the moment, as genetic testing is in its early stages, adverse selection is mainly a speculative issue. The government only considers one test to be precise enough for insurers to use. In the last three years one insurance company has sold 460,000 policies but say genetic tests would only be applicable to 14.With developments in testing being so rapid and the industry wanting to use more tests, the problem will soon become real.
What can be done to solve it?
To stop the market from collapsing the government seems to have decided to allow the industry to view results. This however could create a genetic “underclass” of people who are not capable of getting insurance. People who get clean test results could be offered better rates than those at risk thereby making it unaffordable for them. Shockingly, tests that one day could perhaps save lifes could be discouraged as it may make insurance unobtainable.
What could be done to stop genetic tests being used to discriminate against people?
To solve the problem totally the life insurance industry would have to be made public. This would prevent good risks opting for cheaper deals and high risks bankrupting insurers. These days that is not a popular solution to market failure. The alternative would be for the government to insure the high risks, which would be costly.
What else could be done?
Before people took tests they could be required to take out insurance. Doing this would not stop people doing tests nor allow insurers to take advantage of test results thus damaging the market.
Whatever happens the government is going to have to play a bigger part in the life insurance market.