26.1 Mutually rated insurance is based on a process of underwriting. As discussed in Chapter 25, this involves differentiating between individuals on the basis of the risk that they would bring to the insurance pool if their application were accepted. The same insurance product may be offered on different terms to different individuals depending on the insurer’s assessment of their level of risk. In some cases, insurance may be declined where the insurer determines that the risk the applicant would bring to the pool is too high to accept, at least at commercially plausible premiums.
26.2 The Institute of Actuaries of Australia provided the following example of how this works in practice:
It is well accepted, based on analysis of groups of smokers and non-smokers, that smokers will on average experience heavier mortality than non-smokers. This does not mean that every smoker will die of a smoking related disease. Some will survive to high ages despite the increased mortality risk they have exposed themselves to by smoking. Nevertheless, because their expected or average probability of death is higher, Australian life insurance companies will almost always charge higher premiums under voluntary life policies for smokers than for non-smokers. It is similar with the predictive nature of medical test results, such as high blood pressure, high cholesterol or a positive test for a genetic disorder. Where the risk is higher in probability terms, then the life insurance company is likely to underwrite a higher than normal rating factor for that risk.
26.3 The differentiation between individuals on the basis of their genetic status for the purpose of insurance was a principal factor underlying the establishment of this Inquiry. From one perspective, this process of differentiation constitutes a form of discrimination—it involves treating people differently on account of their genetic status. However, such discriminatory practices are largely exempt from the provisions of Australian anti-discrimination legislation. The exemptions recognise that differentiating between individuals is fundamental to the market in mutually rated insurance products—at least where the decision making process is based on actuarial and statistical data or is otherwise reasonable.
26.4 A large number of submissions received by the Inquiry expressed a range of concerns about discrimination based on the use of genetic information in insurance. A number of submissions also reported cases of alleged genetic discrimination in insurance, although it was often impossible to assess on the facts provided whether the behaviour complained of amounted to unlawful discrimination. There have been no complaints made to the Human Rights and Equal Opportunity Commission (HREOC) on this issue, although the Inquiry recognises that this may not be an accurate indicator of the extent of the problem.
26.5 This chapter examines the evidence available and concludes that, at this time, there is insufficient evidence to justify a departure from the fundamental principle underlying the market in voluntary, mutually rated insurance in Australia, namely, equality of information between the applicant and the insurer. However, given developments in other jurisdictions, including the introduction of two-tier systems in some European countries, the Inquiry is of the view that the Human Genetics Commission of Australia (HGCA) should keep this matter under review.
 Institute of Actuaries of Australia, Submission G105, 7 March 2002.
 M Otlowski, Implications of Genetic Testing for Australian Insurance Law and Practice (2001) Centre for Law and Genetics, Hobart, 15.
 Human Rights and Equal Opportunity Commission, Complaints of Genetic Discrimination under the Disability Discrimination Act: Case Studies (2002).