There is a rapidly growing industry in self-testing and home diagnostic kits, creating a more informed and ‘health aware' life assurance consumer. Phil Brown asks what are the risks to our industry of potential selective disclosure?
At a recent Life Branch of Munich Re (Munich Re) industry event, ‘Striking the Balance' a speaker, Dr Karsten Filzmaier, Chief Medical Officer for Munich Re, considered what insurance applicants can learn about their own health, and how that might alter the balance of knowledge between the insurance applicant and the insurer during the underwriting process.
The relationship between medical data and insurance underwriting should be proportionate and based on sound evidence. However this relationship is under increasing threat due to the availability of self-testing and home diagnostic kits.
Consumers are increasingly able to educate themselves about their own health issues and much of this information may never form part of their General Practitioner medical record and will therefore be unknown to an insurer.
This will increase in the future.
The risk is simple but worth stating. If a customer for life insurance is aware of a specific risk to his or her health and they choose not to disclose it, the insurance company may face higher claims costs than it was able to assume in setting the price of its insurance policies.
This could potentially affect the future pricing or availability of insurance cover to all consumers.
Munich Re has already completed an in-depth analysis to assess the true cost of non-disclosure and the results are shocking. So understanding how future changes in the balance of knowledge between insurer and consumer will affect disclosure levels will be key.
So, how concerned should our industry be?
There are a growing number of home diagnostic tests available to consumers including those for prostate and colorectal cancer, raised cholesterol and many others.
The array of internet based self-tests is significant and becoming broad in their focus. Tests now exist on-line for mental illness including dementia, depression and even schizophrenia.
In addition, earlier this year, it became legal for people to test and diagnose themselves for HIV at home. In the UK, Tesco's are already offering free HIV testing in-store on a pilot basis.
Whilst this may sound alarming for the industry, as with many of these tests, greater analysis is required to fully understand the risks.
Taking HIV self-testing as an example, any potential increase in non-disclosure will be mitigated against by the pool of HIV positive risks being limited. A further significant proportion of these lives will also be unlikely to be seeking insurance cover.
More generally, many self-tests are either not yet validated, or perhaps more importantly, highly unspecific. Therefore such tests will produce false positive results, arguably even leading to the ‘worried well' coming forward to apply for insurance.
Clearly there is no room for complacency and as the development of such tests are inevitable, continual monitoring of these areas is required.
However currently, these risks are not material.
What about genetic testing? There is already a recognised imbalance of knowledge between consumer and insurer within the existing UK concordat and moratorium on the use of predictive genetic tests.
Under this agreement consumers are not required to disclose the results of predictive genetic tests for life insurance up to £500,000, £300,000 for critical illness or £30,000 of annual benefits for income protection.
The only exception to this, and the only predictive test so far approved for use by the insurance industry, is that for Huntington's disease, and then only where the sum assured exceeds certain limits.
The issue of genetics is not a new one to the industry and to date the risks from consumer non-disclosure appear low. There are only a few monogenetic diseases (i.e. a result of a mutation in a single gene in the human DNA) to date that have the potential for proactive adverse selection.
Compared to complex diseases, there are relatively very few individuals affected with these mutations. There is also widespread recognition that predictive monogenetic testing is still a poor tool for assessment of multi-factorial risk.
However, the pace of developments to date of genetic testing is impressive and as such deserves the industry's attention.
Around ten years ago the cost of testing the whole human genome was close to £10m and therefore a clear constraint on any significant volume of such tests being undertaken.
The cost has since plummeted with the price now as low as £600 making genetic testing much more available to consumers in general. Combine this with the increase in accessibility of on-line genetic services; it is easy to imagine how the balance of information could go against the industry in favour of the consumer.
Maybe it is not too long until ‘your whole genome on a memory stick' is an affordable and accessible item.
The industry's greatest protection against consumer's non-disclosure of relevant genetic information remains the ability to ask for family history at underwriting. It is of paramount importance that this right is maintained.
Elsewhere in Europe the use of family history continues to attract negative attention. We should watch carefully for further developments and be ready to act as we cannot afford another event such as gender neutral pricing to catch us unguarded.
Whilst the risks from self-testing currently are not material, the pace of change should not be ignored. The growing consumer access to the broad range of affordable tests demonstrates the direction of travel.
Left unchallenged, it will be inevitable that the asymmetry of information between consumer and insurer will increase. The industry needs to consider the future risks today.
Unfortunately the industry may have unwittingly made the challenge harder - it seems there is an acceptance that the ability of the claims assessor will remain constrained and that the appetite to improve defences at underwriting remains debatable.
As an industry, we cannot afford to weaken underwriting further. We should rigorously defend the right to underwrite appropriately and proportionately.
Only by proactively continuing to research the developments of self testing technologies will we know what action to take and when.
Regarding genetics testing, there are two key points to consider.
1. As an industry, we should continue to defend the right to use family history in our overall underwriting approach.
2. The current arrangement for the UK moratorium on the use of predictive genetic tests expires in November 2017.
So now is the time to challenge the current position on this. Currently insurers are prohibited from asking for the very information that consumers are increasingly gaining access to.
Munich Re is actively involved in the debate on genetics and underwriting implications at a European level and will continue to engage with clients as the landscape changes or new developments arise.
Whilst protecting the industry against these future risks, we are also cognisant that we need to ensure the buying process for consumers does not become more of a barrier to purchase than it already is.
Maintaining the balance between increased underwriting rigour and acceptable STP rates will be a focus and a debate with clients.
Phil Brown is chief underwriting officer at Munich Re UK & Ireland Life
