Memorandum submitted by Co-Operative Insurance
Society Limited (CIS)
1. INTRODUCTION
1.1 CIS is a major player in the UK financial
services industry managing in excess of £26 billion on behalf
of our 4.5 million customers. Our business strategy has tended
to concentrate on personal lines business and we enjoy notable
strength and presence within the UK's life assurance, pensions
and unit trust markets as well as in the UK's general insurance
market.
1.2 CIS is part of the Co-operative Group
of member-owned businesses and we take very seriously the responsibility
of being the UK's only Co-operative insurer. Our unique status
both enables and requires us to focus principally on the needs
of our customers. This can be seen, in financial terms, through
our returning the whole of the profits of our business (after
making the necessary reserves and payment of minimal interest
on our very small paid-up share capital) to our customers in the
form of bonuses and discounts. It can also be seen, in service
terms, from our provision of home service to those many customers
who welcome it. No doubt it is also an important factor in our
recently being voted best insurer and best life insurer by readers
of the Daily Mirror.
2. SUMMARY
2.1 CIS believes it is important to preserve
the fundamental principle of insurance business under which each
party to a contract discloses to the other(s) all relevant information
before the contract is concluded. In particular, it fears that
the concept of insurance would break down if the practice of individuals
taking out insurance on the basis of inside information were to
become widespread. However, it accepts that the way in which business
is conducted must also be sensitive to other public interest needs.
2.2 Genetic testing is in its infancy and
developing fast: consequently it is difficult to predict how effective
genetic testing might become as a predictor of insured events
or how the public's attitude may evolve. CIS supports the ABI
Code of Practice on Genetic Testing, which lays down minimum standards
for members whilst allowing individual insurers to make concessions
wider than the ABI minimum. CIS has a social accountability policy
and, as a consequence of that policy, believes that it is appropriate
for it to go beyond the ABI minimum. Against this background,
and taking into account the problem of under-provision of life
assurance amongst many sections of the public, CIS has taken the
view that, it should, for the time being at least, neither require
applicants for life assurance to disclose existing genetic test
results nor use to their disadvantage any such results which are
disclosed.
In reaching this conclusion, CIS has also taken
into account that the usage of genetic testing for insurance purposes
is an emotive issue and that even where positive results are obtained,
other medical advances could mitigate the effect of the disease
in due course. Furthermore, since the ABI code does not permit
insurers in any circumstances to require an individual to undergo
a genetic test, CIS is also concerned about the possible conflict
for individuals between undergoing a test as recommended by their
medical advisers and not doing so because of the potential adverse
effect for insurance purposes.
3. SOCIAL ACCOUNTABILITY
3.1 Before addressing the specific issues
raised by the Committee, we should give a brief description of
the Society's Social Accountability policy.
3.2 CIS operates a different social agenda
from some of our peers by employing policies and practices tilted
more towards inclusion than exclusion. These policies reflect
the diverse socio-demographic make-up of our customer base and
our commitment to upholding the basic principles and traditions
of the co-operative movement. In spring 1999, CIS became the first
UK insurer to commit to an independently audited programme of
social accountability. This programme has provided further clarity
and direction in terms of meeting the wide-ranging financial and
social needs of our stakeholder groups.
3.3 Against this background we have observed
very closely the developments taking place within the field of
genetic science. Our existing policy in relation to genetic test
results was reviewed and modified during 2000 in the light of
our social accountability policy. Our current policies on this
issue (which are explained further within this memorandum) thus
reflect both our existing business strategy and our wider social
objectives.
4. THE COMMITTEE'S
QUESTIONS
4.1 Mr Farrar's letter of 11 January 2001
asked us to include in our memorandum answers to four specific
questions.
(i) What is your policy toward the
use of genetic test results and what are the reasons underlying
it?
4.2 For life assurance business, our policy
is not to require the disclosure of genetic test results and,
if such results are disclosed, not to use them to the disadvantage
of the customer. For critical illness and permanent health insurance,
we do require disclosure of genetic test results and may take
them into account in underwriting decisions.
4.3 The reasons for this policy are:
(a) The principle that, before entering into
a contract, each party to the contract should disclose to the
other(s) all relevant information is fundamental to insurance
business (and indeed other business). It has stood the test of
time as a sound and fair basis for insurance business to be assessed,
even within the context of "pooling risks".
(b) Nevertheless, we recognise that there
are important public interest considerations which should be allowed
for in the conduct of insurance business. In particular, insurers
should endeavour to avoid practices which risk harm to individuals
or other interests (such as research).
(c) Genetic testing is a major new development
with great potential for public good. Because it is in its very
early stages and developing rapidly, it is impossible to predict
beyond the very short term how the situation may develop. We believe
that the general public does not yet understand the nature of
genetic tests nor the issues surrounding them sufficiently to
make informed decisions concerning them.
(d) Having regard to the foregoing considerations,
we do not think that there is sufficient evidence at present that
information on existing genetic test results is essential to the
sound conduct of our life assurance business. There is, however,
a stronger case for the access to and use of such information
for other types of business: for example, it could not be reasonable
if an individual could obtain insurance against a specific medical
condition (as in critical illness insurance) in the knowledge
that he was predisposed to develop that condition, without sharing
that information with the insurer.
4.4 There is a considerable amount of market
research to support the view that the British public is underinsured
and under-protected. Whilst there are various reasons to explain
this position, our social inclusion perspective leads us to pursue
policies that aim to broaden the reach of insurance protection.
It is our opinion that the widespread use of genetic test results
for insurance purposes without general acceptance or understanding
of these tests by the general public would increase this problem
of under-insurance.
(ii) What scientific advice have you
based your decisions upon, and how reliable do you consider it
to be?
4.5 We rely, as appropriate, on the advice
of the ABI's Genetics Adviser (Professor Raeburn) and our own
Principal Medical Officer and, of course, we abide by any rulings
of the GAIC (or of the ABI where the GAIC has not yet given a
ruling). We consider this advice to be very expert and reliable
in relation to the current state of knowledge.
(iii) The GAIC recently approved the
use of results from the Huntington's Disease genetic test in the
assessment of life assurance policies. If you generally accept
the use of such results in assessing risk, do you anticipate using
other test results in the future and if so, when? In particular,
would you consider using test results for diseases which are not
single gene defects, or where there are non-genetic influences
(for example heart disease)? What factors would you base your
decision upon?
4.6 As previously stated, we do not currently
take into account any genetic test results when underwriting applications
for life assurance (except to the extent that a negative result
enables us to grant standard terms in cases which would otherwise
attract premium loadings or be declined on the basis of a relevant
family history—Huntington's Disease falls in this category).
For other types of insurance, we would consider taking into account
only those tests approved by the ABI or GAIC (as appropriate):
these do not yet include any tests other than single gene tests,
nor do we think it likely that they will do so in the near future.
(iv) How effective do you feel the
current regulatory system is?
4.7 We strongly support the ABI's Code of
Practice on Genetic Testing and believe that it sets out satisfactory
minimum standards. For the reasons given earlier, we would not
generally favour additional regulation, which could easily turn
out to be inappropriate. However, there may well be a case for
granting those with adverse genetic test results the same protection
in relation to insurance (and indeed employment) as is currently
afforded to those with "disabilities" under the Disability
Discrimination Act 1995, provided that rulings of the GAIC were
included in the evidence on which insurers might reasonably rely
in justifying any adverse decisions.
5. OTHER ISSUES
5.1 It will have been noted that our policy
of disregarding genetic test results in respect of life assurance
business does not extend to critical illness and permanent health
insurance. There are several reasons for this.
5.2 The most important is that the effect
of a genetic predisposition on the claims experience is likely
to be much greater for these other types of business than for
life assurance. There are two aspects to this. The first is that,
where the genetic condition does develop the normal sequence of
events will be:
(a) genetically predisposed but symptom free;
(b) first symptoms and diagnosis;
(d) lastly (in some cases) death.
A critical illness (CI) claim will arise as
soon as the diagnosis is made and income replacement claims may
commence as soon as illness develops. Thus claims on such business
are more likely and will occur earlier. The second aspect is that
knowledge of the predisposition will result in closer monitoring
of the individual's health both by the individual and by his doctors:
this will lead to earlier diagnosis (and so earlier payment of
a CI claim) but may, through earlier and better treatment, delay
or prevent death.
5.3 A second reason is that inability to
obtain life assurance cover is more likely to have serious consequences
for an individual than is inability to obtain CI or permanent
health insurance cover. Thus, in striking a balance between financial
prudence and social inclusion, there is a stronger case for a
concession on both sides of the equation in the case of life assurance.
5.4 Also, in the critical illness and permanent
health insurance markets we depend to a considerable extent on
advice from our re-insurers, who have much greater experience
of those products. Their advice is that it would be necessary
to charge all customers significantly higher premiums for those
products in order to cover the higher claims rate that could arise
if genetic test results were ignored in the underwriting. Our
view is that the disadvantage to the many of such higher premiums
could not be justified.
5.5 One concern for insurers generally is
that adverse selection could undermine their financial stability.
If individuals who know that they have, or are highly likely to
develop, a serious medical problem could take out unlimited insurance
against those conditions without having to tell the insurers that
their risk was higher than for the average member of the public,
then it is possible that many of those in that position would
seek to take out large amounts of cover at premiums inadequate
to cover the risk.
5.6 However, CIS is satisfied that there
are for the time being too few genetic tests of significant predictive
value with respect to mortality for adverse selection through
knowledge of genetic test results to be a serious danger to our
life assurance business. Furthermore, it may be noted that insurers
undertake not only medical underwriting but also financial underwriting
and this will help to limit the risk arising from adverse selection.
5.7 Another concern for insurers is that
special measures in respect of genetic test results may spread
to other areas to an extent which could undermine the financial
stability of the industry. That could happen in two ways. One
is that other special interest groups will press for similar special
treatment to be accorded to them. The other is that medicine will
evolve rapidly, with many diagnoses being established on the basis
of genetic tests rather than existing medical tests and/or clinical
findings: this could have the effect of extending the boundaries
for any concessions granted in respect of genetic test results
far beyond what was intended.
5.8 Although we have not been asked specifically
to comment on this point, we think it appropriate to confirm here
that, even before this was a requirement of the ABI Code of Practice
on Genetic Testing, we had decided not to ask any applicant for
insurance to have any genetic test as a condition of acceptance.
5.9 It may be that, in the long run, genetic
test results will become routine and be accepted by the public,
the medical profession and insurers alike as just another form
of medical evidence. If that happens it should produce a satisfactory
outcome, provided we have avoided installing special arrangements
which are difficult to remove.
5.10 Finally, it should be noted that, although
these issues are of great theoretical importance and interest,
they are not yet of great practical importance in insurance. This
is illustrated by the appended statistics. These analyse the 14
genetic test results seen by CIS in connection with applications
for life assurance, critical illness or permanent health insurance
business since April 1997. During that period we have processed
more than 460,000 applications for such policies, so cases where
we see a genetic test result are at present extremely rare. To
date, CIS has used test information to adversely rate one case
for critical illness.
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