FAAA argues a ban on genetic testing in insurance will harm existing policyholders

In September last year, Financial Services Minister Stephen Jones announced that the federal government would introduce a legislative ban on the use of genetic test results in life insurance underwriting.

This announcement was met with overwhelming support from the Council of Australian Life Insurers (CALI), with the group’s chief executive, Christine Cupitt, stating that it is “good for working Australians, it’s good for government and it’s good for industry, too”.

Following a renewed call-to-action from CALI late last year, Jones launched a technical consultation last month on the legislative design and technical details of the ban, including the definition of a genetic test, enforcement of the ban and implementation.

In a submission to Treasury regarding the proposed legislation, the Financial Advice Association Australia (FAAA) has countered the proposal, arguing that banning genetic testing in insurance underwriting will result in increased premiums for existing policyholders, making it harder for Australians to maintain their cover.

“Life insurance is a form of pooled insurance, where pricing is set and premiums are raised on the basis of the assessment of risk within the pool and claims experience applicable to that pool. If the level of risk within the pool increases and claims rise as a result, then premiums will naturally rise,” the FAAA said in its submission.

“Cross-subsidisation is also an important factor. If some of the members of the insurance pool are not paying the level of premiums that are warranted by the risks they present, then other members of the insurance pool will ultimately pay more. This is an issue of equity.

“This genetic testing ban is likely to result in certain Australians who are aware they have a higher-than-average risk after receiving genetic testing results, getting access to life insurance at a lower cost than their risk would warrant, whilst others will ultimately pay more.”

The FAAA further questioned the logic that genetic testing results would become off-limits for insurers while still being permitted to factor in other health-related information, such as weight, previous illnesses and injuries, blood tests, prior mental health problems and family history, despite all the above factors also influencing clients’ premiums and level of cover.

“Our key point is that it seems perverse that the ban on the use of relevant health information only applies to genetic testing and not any other form of predictive health information,” the submission said.

“It would appear that this debate has been driven more from the perspective of promoting genetic testing specifically, rather than improving access and the affordability of life insurance.”

For those who wish to obtain life insurance without the need for underwriting or disclosing their health status, the FAAA noted that group superannuation schemes and employer superannuation schemes offer insurance on an “automatic acceptance limit” basis, allowing them to obtain cover up to a certain limit.

“The existing genetic testing moratorium, which prevented the life insurers from requesting genetic testing being done or obtaining results, was based upon a cap of $500,000 of death and TPD cover and $200,000 of trauma or critical illness cover,” the submission said.

“This meant that those seeking insurance could still obtain a reasonable level of cover without being penalised for their adverse genetic testing results.

“Under the proposed policy, people who know they have genes that will likely lead to an exposure to serious health issues, could obtain $5 million or more of life insurance cover at standard premium rates.”

Although the FAAA recognised the importance of helping more Australians access crucial cover, the group suggested that an alternative solution is necessary as the current proposal could “reduce the level of cover in the general population, increasing reliance on the social security system”.

“The FAAA continues to favour a model where the existing moratorium on insurers using genetic testing in life insurance below certain caps was legislated (albeit with indexation of the thresholds),” the submission said.

“We think this would provide a sensible balance, allowing people with high-risk genetic test results to still access life insurance, but not at a level that would unreasonably impact the life insurance pools and increase costs for existing life insurance policyholders.

“This is a complex issue and needs to be carefully considered on the basis of a genuine understanding and awareness of the implications for all stakeholders.

“We do not want to put obstacles in the way of people accessing genetic testing, however, neither do we want to see this ban work to the disadvantage of existing and future life insurance policyholders who will potentially pay much more for insurance as a result of the ban.”