Genetic information in insurance

25.41 This section examines the use of genetic information in insurance, particularly in relation to the current legal obligations of disclosure and the development of industry policy with respect to the use of genetic test information in underwriting.

Collection of general health information

25.42 An applicant’s legal duty of disclosure has an important practical consequence for the underwriting of personal insurance: insurers can and do collect a great deal of information from applicants to determine whether, and on what terms, they will accept the risk. Health information is gathered because research shows that particular characteristics of individuals impact on their likelihood of making a claim in the future.^[28]

25.43 Insurers collect health information about the applicant from questions posed in the insurance application. Health related questions asked by insurers vary according to the type of policy, but typically they include questions about state of health, physical characteristics, lifestyle, results of medical tests and individual medical history.^[29]

25.44 Further health information may be required in two cases. The first is if the amount of cover sought exceeds the underwriting limit. Insurers generally operate within certain underwriting limits, such as those published by the RGA Reinsurance Company of Australia.^[30] The underwriting limits take into account a number of variables, including the amount insured, the type of insurance, age, and the additional health information sought (such as an examination by a general practitioner or specialist).

25.45 Second, the applicant may disclose current or past medical conditions that require further investigation through a questionnaire, a report from a current doctor, or a medical examination. Application forms usually include a standard medical authority, which gives the insurer written consent to obtain full particulars of the applicant’s medical history, including details of any clinical notes.

Collection of genetic information

25.46 Insurers may also have an interest in using genetic information to underwrite an application for personal insurance. This is because certain kinds of genetic information about an individual, or his or her family, may reveal information about present or future health, which may in turn affect the likelihood of the applicant making a claim under the policy. Insurers may ask applicants to disclose genetic information derived from a genetic test or from family medical history.

Family medical history information

25.47 The IFSA submission noted that:

The use of family medical history is an integral part of the underwriting process. Family medical history has been used for over 100 years within the life insurance industry worldwide … It is used to identify potential medical risks on the basis of the probability that the insurance applicant may be susceptible to certain risks due to a familial/hereditary link with his or her immediate family.^[31]

25.48 Typically, questions about family medical history ask whether immediate family members, that is, parents, brothers and sisters—living or dead—suffered from heart disease, stroke, high blood pressure, diabetes, cancer, or other familial disorders. Family medical history information is used as a means of assessing longevity and the likelihood that an individual will develop a familial or inherited condition in the future.

25.49 In October 2002, IFSA conducted a survey of its members to determine the significance of family medical history in underwriting. Sixteen insurers and reinsurers participated in the survey. The results of the survey were as follows:

The survey covered 7,949 applications for term life cover, total and permanent disability (TPD) cover, disability insurance, trauma cover or combinations thereof. Family medical history played a part in 558 (7.39%) applications. 349 applications showed a family medical history that was either not significant in the underwriting decision or resulted in a favourable underwriting decision (i.e. accepted at standard rates), when considered with other personal medical information.

The remaining 209 (2.62%) applications had an unfavourable underwriting decision (i.e. resulted in a loading, exclusion, deferral or declinature of insurance), which therefore show that the insured’s family history impacts on an extremely small number of underwriting assessments. In 106 of these applications the rating was exclusively attributable to the family medical history, whilst in the remaining 103 applications, the ratings were based on a combination of family medical history and other medical and personal information.^[32]

Genetic test information

25.50 More recently, the life insurance industry has also been using genetic test information for underwriting where it is disclosed by the applicant. The basis for using genetic test information in underwriting was explained by IFSA in the following terms:

The industry views the use of genetic test results in underwriting as an integral part of the medical information currently used, with the important exception that an insurer will not ask an applicant to undergo a genetic test.

Medical information, including results of medical tests, individual and family medical history, and medical examinations, is used by underwriters to understand an individual’s current and likely future health, and thereby to assess their risk of claiming.^[33]

25.51 In 2001, IFSA initiated a research project to monitor both the volume of genetic tests disclosed in Australian life insurance applications and the progress of these applications through the underwriting process. IFSA commissioned the Institute of Actuaries of Australia to survey, on a six-monthly basis, all life insurance companies that sell term life insurance, total and permanent disability insurance, trauma insurance, disability income insurance, and business expenses insurance in Australia.^[34]

25.52 The number of applications received by Australian life insurers involving genetic test information is currently small. Figure 25–1 shows the genetic disorders for which genetic test results were disclosed during the two year survey period. During the first four reporting periods (ending 31 May 2001, 30 November 2001, 31 May 2002 and 30 November 2002) insurers received a total of 235 applications with a genetic test result, of which 211 were assessed. Of these 211 applications, 98 were underwritten on standard terms, 58 were underwritten on non-standard terms, 26 were deferred and 29 were declined. Of the 113 applications that were underwritten adversely—non-standard terms, deferred or declined—the major reason given for the adverse decision was said to be the genetic test result in 27 cases (24% of adverse cases) and some other medical reason in 69 cases (61% of adverse cases).

Figure 25–1 Genetic test results in insurance applications 30 November 2000 to 30 November 2002.

Source: Data prepared by the Institute of Actuaries of Australia and provided to the Inquiry by IFSA.

25.53 To place these figures in perspective, according to statistics collected by ASIC, and made available to the Inquiry by IFSA, during the calendar year ended 31 December 2001 approximately 1.23 million new policies were issued by life insurers in Australia (excluding group life products).

Industry policy on the use of genetic information

25.54 Prior to 1995 the life insurance industry in Australia did not have a developed policy with respect to the use of genetic information for underwriting. In the mid 1990s, IFSA’s predecessor, the Life Investment and Superannuation Association, developed a draft policy on genetic testing, which was released to its members for consideration in June 1997.

25.55 In February 1999, IFSA released an agreed draft industry policy, which was lodged with the Australian Consumer and Competition Commission (ACCC). IFSA applied to the ACCC for an authorisation in relation to a number of clauses in the policy which could be construed as anti-competitive.^[35] This was because the draft policy impeded insurers from competing on the basis of price in so far as it prohibited ‘preferred risk underwriting’, that is, the practice of discounting premiums to persons who present less than standard risk. In support of its application, IFSA submitted that the primary purpose of the draft policy was to ensure that insurers did not initiate genetic tests. The draft policy had been framed in this way to prevent indirect coercion to undergo a genetic test, and thus to respect an applicant’s ‘right not to know’ about a genetic disorder or predisposition.

25.56 The Trade Practices Act 1974 (Cth) provides that the ACCC may grant an authorisation if satisfied that any anti-competitive aspect of the arrangements or conduct is outweighed by the public benefits arising from the arrangements or conduct.^[36] In November 2000 the ACCC granted IFSA a two-year authorisation, noting the establishment of this Inquiry, ‘the complex issues involved’, and the need to provide a ‘breathing space’ during which these issues could be debated and government policy developed. The ACCC concluded that:

Ensuring IFSA’s members do not require applicants for insurance to undergo genetic testing, and that applicants will not be indirectly influenced into undergoing such tests, is likely to result in benefit to the public. In particular, the Commission considers that there is public benefit in avoiding insurer-initiated coercion to undertake genetic testing.^[37]

25.57 Since the ACCC authorisation, IFSA has further developed the draft policy and formalised it into an industry standard (IFSA Standard 11.00—Genetic Testing Policy). In December 2002, when the initial two-year authorisation expired, the ACCC granted an interim authorisation in relation to the relevant clauses, which will run until the ACCC issues its draft determination for comment. At that time the ACCC will reconsider the interim authorisation.

25.58 The purpose of the IFSA Genetic Testing Policy is to specify standards for handling genetic test results to be adopted by life insurers in the operation of their business.^[38] There is no equivalent policy in place in relation to the general insurance sector. The IFSA policy does not extend to genetic information obtained from family medical histories. The key elements of the IFSA Genetic Testing Policy are as follows:

•  Insurers will not initiate any genetic tests on applicants for insurance.
• Insurers may request that all existing genetic test results be made available to the insurer for the purpose of classifying the risk.
• Insurers will not use genetic tests as the basis of ‘preferred risk underwriting’ (offering individuals insurance at a lower than standard premium rate).
• Members must provide their employees and authorised representatives with sufficient information and training so that they understand the content and meaning of the Standard so far as it relates to their particular jobs and responsibilities.
• Insurers will ensure that results of existing genetic tests are obtained only with the written consent of the tested individual.
• The results of a genetic test will be used only in the assessment of an insurance application in respect of the individual on whom the test was conducted.
• Insurers will ensure that strict standards of confidentiality apply to the handling and storage of the results of genetic tests.
• Insurers will provide reasons for offering modifications or rejections to applicants in relation to either new applications or requests for increases on existing policies
• Insurers will have a competent and efficient internal dispute resolution system to deal with complaints relating to underwriting decisions involving a genetic test result.^[39]

25.59 The Genetic Testing Policy is an internal industry standard administered by IFSA. Compliance with the policy is the responsibility of each insurance company that is a member of IFSA. Member companies must certify compliance with the policy annually according to the terms of the IFSA Code of Conduct and Code of Ethics.^[40] The Code of Conduct states that, in the event of non-compliance, the IFSA Board may impose a range of disciplinary measures including public or private censure and suspension of, or expulsion from, IFSA membership. However, as IFSA is not a regulator, it has indicated that its monitoring of compliance will be done with a ‘minimum of formality’.^[41] The IFSA Genetic Testing Policy is discussed further in Chapters 26, 27 and 28.