"Genetics and insurance: an actuarial perspective with a difference"

Trans ICA 2002 R.G. Thomas (U.K.)
1
"Genetics and insurance: an actuarial perspective with a difference"
RG Thomas,
United Kingdom
Web: www.guythomas.org.uk
E-mail: R.G.Thomas@ukc.ac.uk
Summary
This paper is based on a submission which I made to a public consultation by the Human
Genetics Commission in the United Kingdom in 2001. Many individuals or organisations
capable of commenting technically on insurance discrimination have a commercial
interest in promoting such discrimination. Technical expertise is therefore directed to the
promotion of discrimination for commercial ends, but little technical expertise is applied
to counteract it. This paper attempts to redress the balance. Its central section comprises
a point-by-point rebuttal of some of the myths and half-truths which are promulgated by
those wishing to legitimise insurers’ access to genetic test results. Further material is
available at www.guythomas.org.uk.
Trans ICA 2002 R.G. Thomas (U.K.)
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"Genética y seguro: una perspectiva actuarial diferente"
RG Thomas,
United Kingdom
Este trabajo se basa en un envío realizado a una consulta pública de la Comisión Humana
de la Genética en el Reino Unido en 2001. La mayoría de los individuos o de las
organizaciones capaces de comentar técnicamente respecto a la discriminación del seguro
tienen un interés comercial en promover tal discriminación. La maestría técnica por lo
tanto se dirige a la promoción de la discriminación para fines comerciales, pero poca
maestría técnica se aplica para contrarrestarla. Este artículo busca reparar el equilibrio. Su
sección central abarca refutación punto por punto de algunos de los mitos y las mitadverdades
que son promulgadas por aquellos que desean legitimizar el acceso a los
aseguradores a los resultados de pruebas genéticas. El material adicional está disponible
en www.guythomas.org.uk.
Trans ICA 2002 R.G. Thomas (U.K.)
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Preface for ICA2002 readers
The main body of this paper is a lightly revised and somewhat abbreviated version1 of a
submission which I made to a public consultation initiated by the Human Genetics
Commission in the United Kingdom in 2001. This preamble explains the background to
the consultation, and the motivation for submitting the paper to the Congress.
As in other countries, the possible use of genetic testing by insurers has been an issue of
widespread public concern in United Kingdom in recent years. The main developments
in the United Kingdom can be briefly outlined as follows.
In 1997, the Human Genetics Advisory Commission (a predecessor of the Commission to
which I submitted my paper in 2001) conducted a public consultation on genetics and
insurance. They noted “a strong and persistent sense of unease” about the use of genetic
tests by insurance companies, and therefore recommended that the government place a
moratorium on the use of genetic tests by insurers.
At that time the government declined to establish a moratorium. Instead, the government
decided in 1998 established a Genetics and Insurance Committee (GAIC), with the brief
of assessing applications from insurance companies to be allowed to use specific tests for
specific classes of insurance. The government’s expectation appears to have been that
the insurance industry would not use any test unless and until it had been approved by the
GAIC.
During 1999 and 2000 the GAIC drew up criteria for the “approval” of tests and the
Association of British Insurers prepared its first application, for the use of test results for
Huntington’s disease in rating life insurance. The GAIC process was supported by the
insurance industry and by the Faculty & Institute of Actuaries. However for various
reasons, in particular its lack of demonstrable independence from the insurance industry,
GAIC attracted increasingly virulent public criticism.
In the meantime, and contrary to the government’s understanding of what had been
agreed, insurers continued to refer to test results which had not been considered by
GAIC. The Association of British Insurers claimed that the industry had not agreed to
refrain from using tests until they were approved by GAIC; instead, the ABI asserted a
right to use any particular test unless and until an application for its approval had been
rejected by GAIC. This interpretation attracted widespread criticism. To independent
observers such as myself, it appeared that insurers were acting in bad faith: they were
using tests which they had agreed not to use.
Also in 2000, the Human Genetics Commission was established by the government, to
replace the Human Genetics Advisory Commission (and certain other consultative
bodies). The Commission’s terms of reference are to analyse current and potential
developments in human genetics, and to advise government ministers on the social,
ethical, legal and economic implications.
Trans ICA 2002 R.G. Thomas (U.K.)
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In early 2001, the Science and Technology Select Committee of the UK parliament
issued a report on genetics and insurance which was strongly critical of the insurance
industry.
Also in early 2001, the Human Genetics Commission made insurance one of its first
priorities, and initiated a wide-ranging public consultation. The Faculty and Institute of
Actuaries prepared a response from the actuarial profession to this consultation2. This
response was prepared by a working party consisting mainly of insurance industry
employees, and was supportive of the insurance industry, and hostile to people affected
by genetic conditions. As I strongly disagreed with this viewpoint, I decided to make my
own submission.
In May 2001, having completed its consultation, the Human Genetics Commission
published its interim recommendations for genetics and insurance. The Commission was
strongly critical of both the insurance industry and the GAIC, stating bluntly that “the
existing system of self-regulation has failed”. The Commission recommended a threeyear
moratorium on the use of genetic test results for policies with sums assured up to
£500,000, and suggested that this would need to be to be enforced by legislation rather
than self-regulation. The Commission also questioned the use of family history by
insurers, and stated that this would be considered further during the three-year
moratorium.
Pending the Commission’s final report and the government’s response, the Association of
British Insurers established an immediate “self-regulated” moratorium on the use of
genetic test results when assessing applications for sums assured up to £300,000.
The above recommendations constituted only the Commission’s interim
recommendations. At the time of writing, the Commission’ final report giving its detailed
recommendations, and the government’s response, have not been published (although
they will probably have appeared by the time the Congress takes place). However, the
interim recommendations were quite close, in both tone and substance, to the suggestions
in section 5 of my paper.
It is notable that actuarial associations in other countries tend to advance many of the
same arguments on this subject as does the profession in the United Kingdom. It may
therefore be of interest to actuaries from other countries to read some different views – an
actuarial perspective with a difference.
Trans ICA 2002 R.G. Thomas (U.K.)
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SUBMISSION TO THE HUMAN GENETICS COMMISSION
1. Introduction
One of the difficulties which the Human Genetics Commission (HGC) will encounter in
consultation on genetic testing in insurance is that many individuals and organisations
with a technical knowledge of insurance also have a vested interest in promoting
discrimination for commercial ends. The main purpose of this paper is to point out some
of the myths and half-truths which characterise commercial lobbying on this subject.
I am a Fellow of the Institute of Actuaries and a former principal examiner for the
fellowship examinations of the actuarial profession. Whilst this paper is informed by my
actuarial knowledge, much of it is not specifically actuarial. This is because the main
insight I derive from my actuarial knowledge is that the purely actuarial issues in relation
to genetics and insurance are not very compelling.
Section 2 of this paper identifies salient starting points for discussion of genetic testing in
insurance in the UK. Section 3, the central and longest section of the paper, considers
point-by-point the myths and half-truths which are promulgated by those seeking to
legitimise genetic testing in insurance. Section 4 briefly outlines two previous issues,
AIDS and disability, where actuarial issues have sometimes been misrepresented or
exaggerated for commercial ends. Section 5 contains a sketch of my recommendations
for policy.
2. Starting points
Some salient starting points in relation to genetic testing in insurance are public attitudes,
the history of eugenics, and actuarial issues.
Public attitudes to insurers’ access to genetic test results
There appears to be very strong public opposition to insurers’ access to genetic test
results. Apart from the MORI survey conducted for HGC, the British Survey of Social
Attitudes is another authoritative survey which revealed very similar results.3
These results appear to be internationally robust. All reports I have seen or heard from
other countries indicate overwhelming public opposition to, and distrust of, insurers’
access to genetic test results.
The insurance industry’s stock response to this observation is that “education” is required
to promote acceptance of genetic discrimination. The notion seems to be that if insurers
explain their reasons for wanting access to genetic test results, people will change their
minds. However, experiments conducted by the American Council of Life Insurance
suggest that, at least for the moment, “education” makes very little difference to people’s
Trans ICA 2002 R.G. Thomas (U.K.)
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views: the insurers can explain all they like, but people still remain deeply opposed to
insurers’ access to genetic test results.4
Thus the objection to insurers’ access to genetic tests is very strong, and (at least for the
moment) it does not seem very susceptible to “education.” The HGC’s consultation
document noted this strong opposition but then stated that “any response to this issue
must be informed by facts”. Overwhelming public opposition to insurers’ access to
genetic test results is one of the facts.
History of eugenics
The history of eugenically motivated discrimination in many countries refutes the
suggestion that genetic discrimination is harmless until proven otherwise. History places
a heavy burden of proof on those who would assert that ‘mild’ forms of genetic
discrimination (such as denial of insurance) will not lead to more ‘severe’ discrimination
in other social contexts. It is possible that with time this burden of proof could be
discharged; but this cannot be merely assumed.
Apart from the views of the general public as mentioned above, it is clear that groups
representing disabled people have acute concerns about the eugenic connotations of
reference to genetic tests in social contexts such as insurance or employment.5
Actuarial issues
Notwithstanding everything above, there is a potential actuarial justification for
permitting insurers’ access to genetic test results. The potential justification is that such
access is essential to the viability of private insurance markets. But there is currently
little evidence, for any class of insurance, that this either is or will become the case.
3. Myths, half-truths and unsubstantiated assertions
I now consider some of the myths, half-truths and unsubstantiated assertions which are
used by organisations lobbying on behalf of the insurance industry to promote acceptance
of genetic discrimination.
Myth: “adverse selection is an unambiguously negative phenomenon”
Insurers and actuaries talk a great deal about adverse selection or anti-selection.6 In the
context of genetic tests, these phrases refer to the notion that individuals who know from
a genetic test result they have a predisposition to illness or premature death might be
more likely to purchase insurance, or to purchase in larger amounts, than those who
perceive themselves to be at lower risk. The idea is obvious, and intuitively plausible;
but whilst they assert the concept for lobbying purposes, and enjoy telling imaginary
stories about it, insurers and actuaries often pay curiously little attention to the empirical
question of to what extent it actually occurs.
Trans ICA 2002 R.G. Thomas (U.K.)
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Adverse selection (a better, more neutral term would be self-selection) is presented in
commercial lobbying as an unambiguously negative phenomenon. But this is an
insurance company’s commercial perspective. From a public policy viewpoint, adverse
selection is at first order a positive phenomenon: it means that the right people, people
who are more likely to suffer loss, are choosing to buy insurance.
Self-selection is potentially a negative phenomenon only in its second order effects.
Specifically, it can become a negative phenomenon if it reaches a degree which causes
insurance markets to break down. Insurance markets break down when the following
cycle of events occurs to a material extent:
− the price of insurance increases so much that the ‘better’ risks opt out of
insurance;
− hence the pool of insured people decreases in number, and shifts towards ‘worse’
risks;
− insurers further increase premiums to reflect the ‘worse’ pool of risks; and
− the cycle repeats, leading to a spiral of increases in premiums and declines in
numbers of people covered.
This is a theoretical possibility, although it is not clear to what extent it actually happens.
Some recent empirical papers have failed to find any statistical robust evidence of
adverse selection in life assurance markets7,8. But in any case the correct perspective,
from a public policy viewpoint, is that self-selection is generally a positive phenomenon
unless and until it becomes so severe as to make insurance markets break down. From a
public policy viewpoint, a high degree of self-selection in insurance purchase is desirable.
More generally, insurance industry lobbying can create the impression that everyone who
buys life or health insurance must do so because of foreknowledge of illness or early
death. But in reality people may buy insurance for reasons such as conscientiousness
about providing for their family, or tax planning, or because they happen to meet a sales
person. These reasons are quite unrelated to foreknowledge of illness.
Half-truth: “restrictions on discrimination lead to higher costs for consumers”
Another lobbying strategy much used by insurers and actuaries is to assert that any
restriction on insurance companies’ ability to discriminate leads to “increased premiums
for consumers”. When insurers advance this argument they never mention an obvious
corollary. The corollary is that unless insurers make monopoly profits, increased
insurance premiums must mean proportionately increased claim payouts. The
insinuation that policyholders or consumers in aggregate are always disadvantaged by
restrictions on discrimination is false. Restrictions on discrimination lead to a
redistribution of costs and benefits among a pool of life or health insurance
policyholders.9
Trans ICA 2002 R.G. Thomas (U.K.)
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Restrictions on discrimination may also cause some change in the membership of the
insurance pool: “superfit” lives may leave the pool and resort to self-insurance, and more
“poor risks” may be accepted into it. For an insurer, this shift in coverage towards lives
who are more likely to claim may be negative; but from a public policy perspective, it
may be positive. The superfit are likely to be better able to pay for themselves (both
because they are fit, and because they tend to be more affluent) than the people the
insurance industry would exclude if permitted to do so.
From a social perspective, insurance is most effective if there is broad pooling, with large
transfers from the fortunate to the less fortunate. Lobbying by some actuaries can have
the malign effect of making this more difficult. This is because some actuaries tend to
make a habit of proclaiming that fortunate people will be, or even should be, unwilling to
“subsidise” the premiums of the less fortunate.
In reality, most people probably give very little thought – or at least, much less than an
actuary does! – to how their insurance premiums are calculated, and what degree of
cross-subsidy to the less fortunate is implied. Most people have other things to think
about. However, when “experts” (such as actuaries) insinuate that fortunate people will
be, or even should be, unwilling to accept any subsidy of the less fortunate, the
insinuation makes it more likely that this problem will actually occur. This is particularly
so if the experts make (wholly spurious) claims that they have a professional expertise or
"science" which tells society that it should penalise or exclude the unfortunate. Sadly
actuaries often do this, almost always with the effect of promoting the interests of
insurance companies and fortunate people like themselves, and harming the interests of
the less fortunate.
The influence of actuaries and actuarial ideas can have a malign effect on the unfortunate
across a wider perspective. There are very many situations where one can envisage that
people who are disadvantaged in some way – by disability, for example – would be better
off if less attention were paid to actuarial arguments, and more attention to ordinary
humanity. I do not suggest that harming disabled people is the intention of actuarial
lobbying , but it is often the foreseeable effect.
Half-truth: “insurance discrimination represents competition between insurers, which
benefits consumers”
Many types of commercial competition do benefit consumers, but some do not. An
unusual feature of insurance products is that as well as competing in the usual ways for
service industries – price, level of service, product differentiation, recruitment of employees
– the insurers also compete in risk selection. That is, they compete in selecting the “good
risks,” and avoiding “bad risks”. From a social policy perspective, this "selection
competition" is essentially negative: it may create an “insurance underclass”, and does not
make a clear positive contribution to the aggregate welfare of consumers. Public policy
should discourage or reduce this “bad” competition, and encourage “good” types of
competition – that is, those which are more clearly beneficial to consumers e.g. on expenses
and level of service.10,11
Trans ICA 2002 R.G. Thomas (U.K.)
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Half-truth: “insurance is relatively unimportant in UK society”
For the time being this is more or less a whole truth. For example, the existence of the
universal National Health Service in the United Kingdom makes insurance much less
important in healthcare than in many other countries.
But that is only the first half of the story. The second half of the story is that the same
people and the same organisations which lobby for unfettered discrimination in insurance
also conduct a constant and insidious campaign to undermine public support for the
institutional fabric of UK social welfare, and to promote the perception that it should be
largely replaced by private insurance.
The insurance industry tries to have it both ways: it lobbies for unfettered discrimination
on the pretext that UK circumstances make insurance relatively unimportant, and then in
other contexts it works assiduously to undermine those circumstances. It is the
combination of these political agendas which is profoundly sinister.
Myth: “insurance pricing is scientifically precise”
For lobbying purposes actuaries often like to suggest that the pricing of insurance is a
precise exercise, so that even a small increase attributable to a ban on genetic tests would
be material. For example, the Faculty & Institute of Actuaries published a position
statement which claimed that an increase in premiums of less than 10% “could still have
material impact” on the term insurance market.
The wholly spurious nature of this assertion is illustrated by the following figures, which
illustrate large variations which already exist between the rates offered by different
companies, and over time.
Inter-company variations
Lowest monthly premium rates for 25-year level term assurance £100,000 for a
standard male non-smoker life aged 25 next birthday:
Company £ per month
Legal and General 11.04
Scottish Amicable 11.23
Zurich Life 11.50
Standard Life 11.79
Guardian Financial 12.30
Virgin Direct 12.39
Liverpool Victoria 13.85
Canada Life 15.50
Source: Financial Adviser (trade journal), 19 October 2000.
Note that the eighth lowest rate is 40% higher than the lowest. And there many
(probably more than a hundred) companies offering worse rates.12
Trans ICA 2002 R.G. Thomas (U.K.)
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Inter-temporal variations
As well as substantial inter-company variations on any particular date, there are also
substantial commercially-driven variations over time. Here are just few examples:
− In August 2000, 2 months before the date of the table above, one of the
companies (Zurich Life) announced that it was cutting its premiums for term
assurance by up to 40%. 13
− In November 2000, another company (Swiss Life) outside of the top eight in the
table above cut rates for female non-smokers by up to 44%.14
− On 26 April 2001, the headline in Financial Adviser was: “Price war breaks out in
term assurance market.” Norwich Union is reported to have cut rates for
combined term assurance + critical illness cover for female smokers by up to
37%.15 Standard Life is reported to have cut term assurance premium rates seven
times in the last 2 years.
In the context of these inter-company and inter-temporal variations, the aggregate impact
of outlawing access to genetic test results appears likely to be negligible. The “scientific”
account of premium rating often presented by actuaries often bears little relationship to
the commercial facts.
Myth: “insurers do not want to initiate genetic tests, they just want access to tests
already taken”
In public the insurance industry continually asserts that it would never seek to initiate
genetic tests not already taken by an applicant.
There are two reasons to doubt the validity and durability of this policy of self-restraint.
The first is that there are many ways in which insurance practice can create financial or
social pressure to undergo testing short of actual compulsion. Indeed the notion of
compulsion is a red herring: it is difficult to envisage how anybody can be forced to buy
an insurance policy except by state diktat. It is entirely foreseeable that when insurers
do seek to initiate genetic testing, they will argue that nobody is compelled to purchase
insurance, and therefore nobody is compelled to take genetic tests. 16
The second reason to doubt the validity of self-restraint is what insurance policymakers
and opinion formers say, and occasionally write, in forums or media which they perceive
are not for widespread public consumption. For example, Mr Spencer Leigh, an actuary
and underwriting consultant, writes as follows in a recent edition of the British
professional magazine The Actuary 17 (all italics are mine):
“The current UK position is to state that insurance companies will not, at present, request genetic
tests. This is sensible but largely window-dressing as the tests are expensive….Before long,
however, the cost of tests will be reduced.”
Trans ICA 2002 R.G. Thomas (U.K.)
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Mr Leigh also notes that the Association of British Insurers has a credibility problem in
commenting on genetic testing because of its obvious self-interest, and therefore
recommends that
“The Institute of Actuaries, with its more independent stance, could put these issues to the media
and demonstrate that the arguments are not as one-sided as they think. The Institute has issued
one statement, but next time round more thought needs to be given as to how it can be perceived
positively. I realise I am advocating spin-doctoring, but without suitable guidance, we will lose
our case.”
These recommendations from Mr Leigh help to debunk the next myth.
Myth: “actuaries do not advocate the interests of any particular group”
In the light of Mr Leigh’s comments, it is interesting to consider the Faculty & Institute
of Actuaries’ briefing statement to which he refers. The preamble to the statement asserts
that
“The profession aims to evaluate the financial impact on all groups which are likely to be affected,
but does not advocate the interests of any particular group.”
Regrettably, both parts of the above sentence are untrue. The first part is untrue because
actuarial thinking and analysis are focused on the finances of insurance companies, not
individuals. I am not aware of any area of actuarial literature or analysis which aims to
evaluate the financial effects on individuals of illness, or being unable to purchase
insurance.
The second part is untrue for reasons which follow from the first. The fact that actuarial
thinking and analysis are concerned with the finances of insurance companies leads
actuaries to advocate the interests of insurance companies. Additionally, of course,
actuaries are typically employed by, or advisers to, insurance companies. It is quite
laughable for actuaries who are thus occupied to suggest that they are independent.
Myth: “insurance risk classification is a scientific matter”
Another lobbying strategy is to assert that a particular organisation of insurance markets
is dictated by “science”. This is the same error as was made in earlier disasters of
eugenics. It misconstrues the essential nature of science. The essence of science is that it
is positive, and not normative. Science says nothing about how insurance (or any other
social endeavour) should be organised; at best it only predicts what is likely to happen if
we do organise it in particular ways.
Unsubstantiated assertion: “self-selection is a much greater problem in critical illness
and long-term care insurance than in life insurance”
This assertion is frequently made by insurance companies and their advocates in
discussion in the United Kingdom, but there is no evidence to substantiate it. Some recent
Trans ICA 2002 R.G. Thomas (U.K.)
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actuarial studies suggest that even under the most extreme assumptions, ignoring genetic
tests and family history would have little effect on reasonably well developed critical
illness insurance markets such as exist in the UK. However this necessarily tentative
conclusion is perceived by actuaries as politically unhelpful to their insurers’ freedom of
operation, and so an effort has been made by UK actuaries to create a ‘spin’ that these
types of insurance present unspecified “greater problems.”
An example of this ‘spin’ was the presentation by the Institute of Actuaries of the results
of an investigation of genetic test results and insurance in relation to the BRCA1 and
BRCA2 genes. A press release18 was issued stating that
“[The results] showed how genetic tests for BRCA1 and 2 could affect the underwriting of critical
illness insurance, where an accelerated benefit would normally be payable on diagnosis of cancer.
This showed much higher levels of potential impact of adverse selection than for term life
insurance, particularly for young and developing critical illness markets.”
The impression given by this press release is that self-selection would very materially
impair the viability of the critical illness insurance market. It omits to note that much
higher levels of self-selection may still be (and in this case are) immaterial levels.
The paper on which this press statement was based, reporting an industry-funded study
and looking at the problem from an insurance company’s perspective, stated that19
“Overall, we conclude that adverse selection is only likely to be significant if
(a) the CI market is very small (smaller than it is in the UK)
(b) very high sums assured can be obtained without disclosing genetic test results or family history
(c) the higher penetrances observed in the highest risk families apply more widely.”
This suggests that self-selection is a theoretical problem from a commercial perspective,
and it may be a practical problem in some very small insurance markets; but it is likely to
be quite immaterial in the UK critical illness insurance market.
Overall, the unsubstantiated assertion that critical illness and long-term care insurance
markets present unspecified ‘greater problems’ is best understood as a political strategy
of the UK insurance industry: make limited concessions on life insurance, but hope to get
away with more discrimination on everything else.
Interestingly, the US insurance industry and their apologists in the actuarial profession
seem to adopt a converse political strategy: they make concessions on health insurance,
but hope to get away with everything else. For ICA2002 readers, I can easily illustrate
this. For example, consider the report20 of the American Academy of Actuaries on their
lobbying to promote genetic discrimination on Capitol Hill on 29 August 2001:
"Some of the answers that work for health insurance don't work equally well for life insurance,"
Dicke said, explaining that life insurance—sold to individuals is a long-term coverage that cannot
be cancelled by the insurer, involving cash benefits that are large relative to the periodic premium
paid. The risk of anti-selection is significant…. “
Trans ICA 2002 R.G. Thomas (U.K.)
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Compare this with the contradictory statement21 by the British actuaries:
“the impact on temporary insurance premiums is likely to be small….However, .the risks of a
small minority of policyholders taking advantage of genetic information when applying for
…..individual private medical insurance are likely to be considerably greater [than in life
insurance].”
In making these mutually contradictory statements, the American actuaries and the
British actuaries cannot both be correct. The contradiction arises because both groups of
actuaries are concerned with supporting the political strategies of their respective
insurance industries, and these strategies happen to be different.
Myth: “insurance practice is based on full and equal disclosure by both parties”
Actuaries and insurers often trot out the notion of uberrima fides or “utmost good faith”
in any discussion of underwriting, as if it were a justification for any insurance company
practice. In the context of genetic tests, this appears rather ironic to the detached
observer, for two reasons.
First, insurance companies do not routinely disclose to the customer how premiums are
calculated or the medical reasons why loadings have been applied, and it can be very
difficult for the customer to obtain this information. In other words, insurers do not fulfil
their side of “full and equal disclosure”.
Second, at an industry-wide level, UK insurers’ actions to date in relation to genetic
testing have not been consistent with any commonsense notion of “utmost good faith”.
For example, there is the lack of practical commitment to implementing the industry’s
genetics code of practice, which has been criticised by (amongst others) the Select
Committee on Science and Technology. Also, there is the fact that industry has
continued to use tests which have not been approved by the Genetics and Insurance
Committee, and which the government understood would not be used.
4. Previous examples: AIDS and disability
Although they are not directly related to genetic testing, it is instructive to examine some
previous issues where self-selection has been misrepresented or exaggerated for
commercial ends.
AIDS
In the late 1980s, the actuarial profession directed much attention to AIDS, and produced
numerous papers22 projecting greatly increased mortality. Term insurance rates were
increased very sharply. Many companies refused to provide insurance on any terms to
homosexual men. Subsequently, it has become clear that the actuaries’ predictions of
increased mortality were grossly exaggerated. When one raises this, some actuaries
suggest that their exaggerated predictions were socially beneficial, because they helped to
promote appropriate public health measures in reaction to the problem. But if one looks
Trans ICA 2002 R.G. Thomas (U.K.)
14
back in professional journals to actuarial papers written in the late 1980s, one does not
find actuaries were concerned with promoting public health measures. On the contrary,
actuarial discussion appears to have focused overwhelmingly on the commercial interests
of insurance companies, and was dismissive of the social problem (well recognised in
other circles) that insurance company reactions might have a negative effect on public
health measures (eg by discouraging people from having HIV tests).
I was not an actuary in the 1980s, but one possible motivation of some actuaries’
presentations at the time was suggested to me a few years ago by a retired actuary, who in
the 1980s was the appointed actuary of a quoted insurance company. He recalled that
because of intense competition, term insurance premium rates had been relatively
unprofitable for some years. AIDS was apparently seen by some actuaries as a
convenient pretext for the industry to achieve a step-change in premium rates which
would restore profitability of this class of business to a more satisfactory level.
According to the retired chief actuary, meetings were organised between representatives
of a number of companies with the objective of agreeing to present a common public
relations line to the effect that AIDS necessitated a substantial rise in term assurance
premium rates.23
The overall effects of the actuaries’ “professional” reaction to the AIDS epidemic were:
to increase the profits of insurance companies; to promote homophobia; possibly to deter
people from seeking testing and medical care; and the social exclusion of many
homosexuals in a way which was (in the light of the subsequent drastic reductions of
premium rates) wholly unnecessary.
Disability
Under the Disability Discrimination Act 1995, insurers in the United Kingdom enjoy a
number of unnecessarily lenient and broad exemptions. When the Act was first drafted,
the proposed exemptions included one which made it lawful for employers to bar newly
recruited disabled employees from joining defined benefit pension funds. The
justification was an “actuarial” one: it was suggested that disabled people might be more
likely to retire in ill health, or die before retirement.
In consultations prior to the Act’s implementation, I wrote a number of letters to the
Department of Social Security pointing out that this exemption was not necessary for the
financial stability of pension funds. There was no significant risk to the overall finances
of a pension fund from the possibility of a small number of disabled employees being
more likely to retire early or die; the fact that the disabled person was starting a job
would normally suggest that their health was at least reasonable; and in any case, the
whole raison d’ être of a defined benefit pension fund is cross-subsidy.24
Both these examples involve a misrepresentation and exaggeration of the actuarial issue
of self-selection for potential commercial benefit. The pity of it is that certainly in the
latter case, and possibly even in the former case, the commercial benefit was extremely
marginal.
Trans ICA 2002 R.G. Thomas (U.K.)
15
5. Recommendations
In evaluating submissions relating to insurance, the Human Genetics Commission should
recognise that substantial technical and lobbying resources are available to those who
wish to promote genetic discrimination for commercial reasons, and virtually no technical
resources are available to those who may wish counteract it. The weight of submissions
of a ‘technical’ character may be affected by this.
There should be a presumption against insurers’ right of access to genetic tests, except for
exceptionally large policies, or where insurers can show that ignoring tests would
seriously disrupt the financial stability of insurance markets. All evidence to date
suggests that under this criterion, little or no access to test results would be justified. It is
possible that in many years this situation could change, but that is a possibility which can
be addressed if and when it arises.
The definition of ‘exceptionally large’ policies in the previous paragraph should be made
by reference to the limits which a company sets in each age range for automatic medical
examinations. For example, in the case of life insurance for persons up to age 40,
insurers typically set limits between £250,000 and £500,000 on the amount of cover
which can be obtained without automatic medical examination. At higher ages, lower
limits typically apply.
It may also be desirable for social and privacy reasons to restrict insurers’ access to
information about family history; but further work may be needed to assess for which (if
any) insurance products this would impair the viability of private insurance markets.
It would be difficult to prevent insurers taking account of ‘negative’ tests (ie those which
indicate the absence of a disease-linked mutation), if an applicant chooses to disclose
them. However I would prefer that insurers were discouraged from actively promoting
this concept, since there is clear potential for it to distort patients’ decisions about seeking
or avoiding tests.
The Genetics and Insurance Committee should be disbanded. It should be replaced by
statutory regulation based on the principle that insurers’ access to genetic tests should be
permitted only where it is necessary to ensure the financial stability of insurance
markets. This regulation, unlike the GAIC, should be demonstrably independent of the
insurance industry.
Postscript for ICA2002 readers
The preceding paper was submitted to the Human Genetics Commission in Spring 2001.
The Faculty & Institute of Actuaries also made a submission, but this was quite different
to mine, both in tone and substance.
Trans ICA 2002 R.G. Thomas (U.K.)
16
Actuaries worldwide seem to have a problem with this subject, because their habitual
hostility towards people affected by genetic conditions attracts very little public support
anywhere in the world. The profession’s credibility is diminished by actuaries on
opposite sides of the Atlantic tending to pursue mutually contradictory lobbying
strategies.
In my paper25 (with CD Sharp) to the 1998 International Congress, I wrote:
“The rise of consumerism, and the pressure to circumscribe or outlaw statistical discrimination in the
guise of human rights legislation, are both trends which seem likely to continue into the 21st century.
They present challenges for any profession whose traditional values are inimical to these trends. In
our view it would be politically ill-advised, and probably in the long run simply untenable, for
actuaries to continue to be hostile to these trends in the ways which they have been in the past. The
actuarial profession needs to find ways of accommodating and even embracing such trends, rather
than fighting losing battles against the tide of social history.”
In the time since the 1998 International Congress, the perception that actuaries are by
systematically hostile to the interests of consumers in general has started to cause some
difficulty for the profession in the United Kingdom. For example, the discretion
exercised by actuaries in relation to with-profits insurance has attracted a quite
unprecedented level of criticism from consumer organisations, regulators, politicians and
the media. I suspect that the level of criticism over the past four years has been greater
than many UK actuaries might have anticipated at the time of the 1998 Congress.
Similarly, the legislative and social trend towards restrictions on genetic discrimination
has been apparent for some time, and attracts deep and broad support. Actuaries are
generally hostile to this trend. This has not yet caused any serious difficulty for the
profession, but I predict that it will. In the long run, it is difficult to see how opposing a
widely supported legislative and social trend will attract any credit to the actuarial
profession.
1 The ways in which the original submission has been modified are that (a) most material which was very
specific to the UK context has been omitted, and (b) some material from a follow-up submission has been
added. The original submission and follow-up are available at www.guythomas.org.uk.
2 The Faculty & Institute of Actuaries’ submission can (at the time of writing) be found at
www.actuaries.org.uk. My detailed critique of this submission can be found at www.guythomas.org.uk.
3 16th Annual Survey of Social Attitudes, p165.
4 Jones, CS (1999). The current state of genetic testing, an insurance industry perspective on the rush to
legislate. North American Actuarial Journal, 3,1, pp 56-66.
5 See for example: British Council of Disabled People (2000). The new genetics and disabled people.
Paper available at http://www.bcodp.org.uk/general/genetics.html.
6 Note that this very vocabulary betrays the actuaries’ bias: ‘adverse’ selection in fact means adverse to the
insurer. From a public policy viewpoint, the phenomenon may be highly positive, as I discuss below.
‘Self-selection’ would be better term.
Trans ICA 2002 R.G. Thomas (U.K.)
17
7 Cawley, J & Philipson, T (1999) An empirical examination of information barriers to trade in insurance.
American Economic Review, 89(4), pp827-846.
8 Chiappori, P-A & Salanie, B (2000) Testing for asymmetric information in insurance markets. Journal of
Political Economy, 108, 56-78.
9 Typically the redistribution is away from healthy or privileged and individuals towards the less healthy or
less privileged. People in a position to pontificate about insurance matters tend to belong to the former
group!
10 This is discussed in Moultrie, TA & Thomas, RG (1997) The right to underwrite? An actuarial
perspective with a difference. Journal of Actuarial Practice, 5, 2, pp125-147. A version is available at
www.guythomas.org.uk. There are some instances where “selection competition” could be seen as socially
positive through its signalling function: for example, insurers’ competition to avoid insuring houses subject
to flooding sends a useful signal to society that new houses should not be built on flood plains! But this
‘signalling’ concept has very limited applicability in life or health insurance.
11 In a slightly different context, another type of competition between insurers which generally does not
benefit consumers is competition bidding up levels of commissions paid to agents – from a consumer
perspective this type of competition is a major structural problem of the insurance industry, as the
Consumers’ Association has pointed out.
12 There was in fact an even more competitive rate available in October 2000, namely £8.75pm from
Equitable Life. I have omitted this because if I include it, somebody may try to obfuscate by referring to
this company’s other current problems. In fact those problems have nothing to do with term insurance and
there are some good reasons why Equitable was cheaper than all the others (I can explain if required).
Nevertheless, the 40% variation between the next 8 companies is sufficient to make my point.
13 Source: retrospective report in Financial Adviser, Protection Supplement, 9 November 2000, page 3.
14 Source: again a news items in Financial Adviser, Protection Supplement, 9 November 2000, page 3.
15 Source: news items in Financial Adviser, 26 April 2001. Note that critical illness is one of the covers for
which the Institute of Actuaries alleges there are unspecified “greater problems”
16 Apart from being a foreseeable development, this line of argument is already occasionally used by
insurance executives, at least when they think only other insurance executives are listening. See for
example: Leigh, S (1996). The freedom to underwrite. Paper to the Staple Inn Actuarial Society, at ¶5.51.
17 Leigh, S (2000). The gene genie. The Actuary, October 2000, pp20-21.
18 Press release 26 October 2000: http://www.actuaries.org.uk/pr-rels/2000/ukfgi241000.html.
19 Macdonald, AS & Pritchard, D (1999). Genetics, alzheimers disease, and long-term care insurance. To appear in
North American Actuarial Journal. See summary of results in paragraph 8.6. Also Research Report No 2 of the Swiss
Re / Heriot-Watt genetics initiative: The genetics of breast and ovarian cancer II: a model of critical illness insurance.
See summary of results at p28.
20 This report is taken verbatim from the American Academy of Actuaries’ own website:
http://www.actuary.org/briefings/geneticstory_0801.htm. Similar statements have been made by American
actuaries on many other occasions.
21 This statement is taken verbatim from the Faculty & Institute of Actuaries’ position statement on genetics
and insurance, as at September 2001. Similar statements have been made by British actuaries on many
other occasions.
Trans ICA 2002 R.G. Thomas (U.K.)
18
22 For example there were a series of AIDS Bulletins presenting projections of the epidemic.
23 I do not suggest that this was a motivation of all actuaries commenting on the epidemic; but it is
plausible that it was one factor leading to the profession’s exaggerated response.
24 For example, defined benefit pension funds typically involve a large cross-subsidy from the aggregate
workforce to a small number of high earners. Strangely one never hears actuaries arguing that this crosssubsidy
to high earners creates insuperable actuarial difficulties, in the same way as they allege for
subsidies to the unfortunate!
25 Thomas, RG & Sharp, CD (1998) Actuarial Values. Transactions of the International Congress of
Actuaries, 1, pp95-110. A version is available at www.guythomas.org.uk.

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