Will genetic test results be monetized in life insurance?. Issue 4 (28th November 2020)

• Record Type: Journal Article
• Authors: Haçarız, Oytun; Kleinow, Torsten; Macdonald, Angus S.; Tapadar, Pradip; Thomas, R. Guy
• Is Part Of: Risk management and insurance review. Volume 23:Issue 4(2020)
• Page Start: 379
• Page End: 399
• Publication Date: 2020-11-28
• Subjects: adverse selection -- genetic tests -- life settlement -- one‐shot gamble -- stranger‐originated life insurance; Risk (Insurance) -- Periodicals; Risk management -- Periodicals; Risk (Insurance) -- United States -- Periodicals; Risk management -- United States -- Periodicals; 368
• DOI: 10.1111/rmir.12159
• Languages: English
• ISSNs: 1098-1616

Abstract

Abstract: If life insurers are not permitted to use genetic test results in underwriting, they may face adverse selection. It is sometimes claimed that applicants will choose abnormally high sums insured as a form of financial gamble, possibly financed by life settlement companies (LSCs). The latter possibility is given some credence by the recent experience of "stranger‐originated life insurance" (STOLI) in the United States. We examine these claims, and find them unconvincing for four reasons. First, apparently high mortality implies surprisingly high probabilities of surviving for decades, so the gamble faces long odds. Second, LSCs would have to adopt a different business model, involving much longer time horizons. Third, STOLI is being effectively dealt with by the U.S. courts. Fourth, the gamble would be predicated upon a deep understanding of the genetic epidemiology, which is evolving, subject to uncertain biases, and cannot predict the emergence of effective treatments.