Since FSC press releases during the back half of 2018 announcing the industry’s proposed moratorium on Genetic Testing, I’ve been asked by a number of market colleagues for my views as to where we’ve landed and if this is the right steps forward for our industry with regard the right to underwrite? That is, our right to continue to manage risk to ensure our underlying offer remains as accessible as possible to as many members of the population at a sustainably affordable price.
These have all been very reasonable questions to ask. There are and continue to be aspects of the proposed moratorium that remain a concern to me and the future of our industry and how we select and price risk. This article has been written with a view to providing an update to technical professionals across both underwriting and claims disciplines on the journey so far and provide responses to the commonly asked questions as the Australian life insurance industry moratorium has gained momentum.
Isn’t the current FSC Standard 11 sufficient?
FSC Standard 11 has fulfilled a critical purpose for our industry since its inception on 1 January 2002.1 It demonstrated our industry’s willingness to self-regulate, work with government, genetic counsellors and other professionals in a transparent way so insurance customers were informed not only about their legal obligation to notify an insurer about genetic tests they had undertaken, but also importantly how this information would be used and why.
We should also not forget the updates to both Standard 11 and 16 (Family History) in 2011. We provided consistency in the wording of the genetic test question asked of an insurance applicant to ensure only tests where an individual result had or was being obtained was required to be disclosed (to assist consumers who participated in medical research where individual genetic test results were not provided to participants or the participant had indicated they did not want to receive their result). Additionally, as an industry we provided greater clarity with regard to the family history questions we ask by articulating that only family history information with regard first degree blood relatives needed to be provided.
Australia was indeed in a unique position globally as our Standard stipulated that we would not request or coerce an applicant for insurance to undergo a genetic test for the purposes of obtaining a life insurance product but an individual who had previously undergone genetic testing and received an individual result for any purpose was required to disclose this to an insurer under their contractual Duty of Disclosure and that the genetic test result could be used by an insurer in their underwriting of the applicant. Our market was also unique globally in that we diligently recorded (de-identified) all applicant’s where a genetic test had been disclosed in a common data base and the final underwriting decision made with respect to each person. This data and in particular how often an applicant disclosed a genetic test and were accepted for life insurance cover at Standard rates (even with a positive genetic test for conditions like haemochromatosis) were and remain invaluable for our industry to continue to demonstrate transparency and to educate consumers in what we do and why.
Despite these initiatives, professional bodies, lobby-groups and politicians have continued to challenge our industry (often-times with no sound basis or simply misinformation) with regard our approach to individuals with a known genetic predisposition. This discontent has been constant in the growing area of medical research but meanwhile these parties have continued to keep abreast of the legislative state of play in countries around the world on this hot-topic. In particular, the United Kingdom’s position where a moratorium existed and was replaced by a Code on Genetics in October 20182 and in Canada who after introducing a genetic test industry Standard similar to that of Australia’s, had legislation passed during 2017 that makes it unlawful to use genetic test results in the underwriting of life insurance products.3 This legislation is currently being challenged in the Canadian Supreme court.4
Why didn’t Australia simply adopt the U.K moratorium model much earlier?
There are numerous compelling reasons why Australia has not followed the path of the U.K. These arguments can essentially be categorised into one of either legislative or product feature reasons unique to Australia.
Firstly, the argument that has long been used in Australia by insurance industry detractors, that someone with a known genetic predisposition to a disease / disorder cannot obtain life insurance is simply incorrect. This has been demonstrated by our industry’s de-identified genetic test data collection as highlighted above. Additionally, Australia has unique legislation in the form of the Guaranteed Superannuation Contribution (GSC) levy which requires an employer to make a contribution equivalent to 9.5% of an employee’s salary into a complying superannuation fund for the individual’s retirement. The vast majority of employer superannuation funds also provide life insurance benefits (Death, T.P.D and even Group Salary Continuance cover) within this arrangement where generous “free cover” limits (Automatic Acceptance Levels) are provided to every employee who meet eligibility criteria such as being at work doing their normal duties. That is, there is no underwriting of the risk up to these generous free cover levels. The overwhelming majority of working Australians have access to this form of life insurance cover.
Australia is one of few countries that do not offer an applicant a set policy term for life insurance cover. That is, Australian policies are long term duration with most life insurance covers ceasing at age 100. This feature is further underpinned by the Life Insurance Contracts Act requiring a contract to be of a non-cancellable, guaranteed renewable nature.
Whilst Canada is similar in that it does offer longer duration coverage (albeit not to age 100 but commonly a 30-40 year term), the U.K policy offerings generally have the following features:
- Limited term duration. This is selected by the applicant as part of the insurance application. Terms as short as 10-15 years are available. When the policy coverage ceases, cover is re-underwritten if continuing insurance is required by the insured life / policy owner. Note, longer duration policies are written, (30 – 40 year duration) particularly for mortgage purposes but a policy duration of 25 years is more common.
- Product features for mortgage protection are usually of a decreasing sum insured nature. That is the policy sum insured reduces in line with the mortgage as it is paid.
- Product features do not include automatic indexations to the level of cover.
To expand on these points then, a U.K insurer who accepts a life insurance policy on an individual not required to disclose a genetic test result, will have the opportunity to re-underwrite the cover at the conclusion of the policy duration where continuity of cover is required – and where the underlying genetic mutation has expressed itself in some identifiable way during this time, this could be a material factor used by the underwriter which may result in an offer of modified terms during the selection process for the new term requested. An opportunity an Australian insurer is not provided due to the nature of our products and legislation.
Continuing with product design, Australian life insurance products are increasing in nature with most insurers offering a guaranteed 5% indexation option (increase) annually even in low inflationary economic times. That is, the actual increase in policy sum insured is in real terms then currently growing at a greater rate than the reported Consumer Price Index (CPI) figure used to measure inflation.
The above product design features and legislative facts, underpin our industry’s current position when we are challenged to offer higher moratorium sum insured levels that are equivalent to the British Pound conversion rate.
Interestingly, the U.K Code on Genetics sum insured levels have not moved since the U.K moratorium inception 15+ years ago, so effectively with inflation over time the level of cover currently being offered if anything, has reduced from a policy proceeds ‘buying-power’ perspective.5
So where to from here?
There is still much to be done including addressing feedback from all bodies and individuals who have provided a formal submission as part of the scheduled public feedback period. Whilst some of the submissions I have seen as part of the FSC Genomics Working Group have been well balanced, others have been far from balanced and this only reinforces the importance of our industry becoming more pro-active with regard the education of the wider community as to what it is we do as a life insurance industry and even more importantly why we do what we do.
Literature suggests that we need to repeat simple facts on a topic that an individual or group is familiar with multiple times (on average up to 7) before it becomes part of a learning process.6 The conveying of our message then needs to be ongoing, even more so to our audience who are generally not well informed on the topic of life insurance. This is only magnified further in the political space where Ministers and Members of Parliament seem to be changing more frequently than perhaps in the past.
It is indeed a balancing act. Our industry remains at a very important cross-road and whether we like it or not, one that has and will continue to challenge us to prove that we are listening, have nothing to hide and that we are capable of operating under an agreed equitable framework without the real risk of having legislation forced upon us. Legislation likely to be significantly influenced by individuals and parties who do not understand (or have not yet heard it enough) the tremendous community service that our industry provides.
As we trek forward, our industry’s ability to be able to substantiate our position via the reporting of de-identified genetic test data will continue to be critical. We need to continue to embrace this aspect of our important technical roles and register each case you see containing a genetic test in the FSC genetic test data-base. I also encourage you to engage fully in the implementation of the genetic test moratorium (which will be introduced initially as an amendment to the respective FSC Standard(s) rather than an inclusion in the Life Insurance Code of Practice (LICOP) due to the delay of (LICOP) 2.0 which was due for release 1 July this year.
Each one of us needs to be responsible for becoming familiar with the mechanics of the moratorium, strive to be a ‘Champion’ for your employer and indeed the industry and ensure it can and does work for all, from both a risk management and administration perspective.
- Financial Services Council: https://www.fsc.org.au/
- Genetic Non-Discrimination Act: https://laws-lois.justice.gc.ca/eng/annualstatutes/2017_3/
- CBC News : https://www.cbc.ca/news/health/genetic-non-discrimination-act-challenge-quebec-1.4658432
- Association of British Insurers (ABI): https://www.abi.org.uk/
- Ebbinghaus – Memory 1885. http://www.keytostudy.com/many-repetitions-long-term-retention/
Shane Burdack is a Senior Underwriting Consultant with Swiss Re Australia and New Zealand. Shane is a member of the FSC Genomics Working Group and represented the Life Insurance Industry as a member of the Australian Government appointed Human Genetics Advisory Committee (HGAC) for the triennium 2009 – 2012.