“You would have more risk classes if someone says, ‘Okay, I’m in perfectly good health,’ but he or she is genetically predisposed to [an illness],” he told Insurance Business. “Now we’ve got insurers saying, ‘Let’s charge them more.’ It could affect the cost of underwriting. It could become more expensive. Then there would be more declines.”
But life insurance would definitely be more expensive for brokers’ clients if the bill is passed as it is currently worded, life insurers say.
A big deal for life insurers is a proposed amendment to the Canadian Human Rights Act, one that goes to the heart of an insurance company’s ability to price according to risk. This portion of the bill would disallow any discrimination on the basis of “genetic characteristics.”
“When you think about it, all illnesses are genetic in nature,” said Frank Zinatelli, vice president and general counsel of the Canadian Life and Health Insurance Association (CLHIA). “I’m afraid that under this proposed amendment, you couldn’t even ask about a person’s family history when they apply for insurance.
“That is a really big concern. That is really the base of the underlying system for insurance companies.”
Life insurance companies currently do not require genetic testing, so that part of the proposed new bill is already consistent with industry practices.
But the CLHIA, which represents 99% of Canada’s life and health insurance business, says a person who has had a genetic test should disclose the results if they are relevant to underwriting the risk. Also, life insurers believe they should be able to stop doing business with a person who has had a genetic test, but refuses to disclose the results.
“What we say is that if somebody does take a test and has the results, then when they apply for insurance, they should tell us about that if it’s an actionable material matter,” said Zinatelli. “We need to know that to make a proper risk assessment, so we can charge the appropriate premiums. Otherwise, there will be anti-selection.”
Adverse selection is when a correlation exists between high-risk insureds and their inclination to buy more insurance. For example, smokers may be more likely to buy life insurance.
When insurance companies cannot price for this correlation – either because of regulation, or because the higher risk is not disclosed – they may have to increase rates for all of the members in the risk pool.
In other words, the lower risks will be subsidizing the costs of the higher risks in the pool.
A proposed new law that would ban life insurers from discriminating on the basis of “genetic characteristics” could be good or bad for the clients of a life insurance broker.
