The Life and health
insurer assesses the risk based on the factors such as a build habits, family
history, occupations and medical history. Sometimes the insurer asks for
medical reports such as a ECG, urine tests for better assessments of risk. Properly assessed risks will then be
classifieds into homogeneous groups for
uniform spreading of risk. The process of risk classifications has three objective: protection of financial
soundness:. Adverse selection. Fairness.
PROTECTION OF FINANCIAL SOUNDNESS:
The risk classification ensures
that premiums reflect the true level of risk and are adequate to enable the insurer to meet is its contractual
obligations to its policy holders.
More detailed information on risk characteristics enable the insurer to
arrive at a more precise premium.
Inadequate premiums will lead to
insolvency of the insurer. So detailed
information on risk characteristics of proposer will protect both the insurer and
the insured. Genetic tests provide
additional and useful information on the
life expectancy.
ADVERSE SELECTION:
Adverse selection is nothing but voluntary entry of a policy holder into
a classified group by the suppression of
material information. with an intension to get advantage of that group with
respect of the level of risk. The underwriting tries to avoid this adverse selection by scrutiny of the
risk characteristics of proposer. In the
absence of complete medical information the insurer is likely to put such an individual
in an inappropriately low premium class. This result in subsidization of a substandard life by other better lives. If this encourage
a good number of insured towards
suppressing the information, then it
will jeopardize the financial viability of the insurer. The absence of a strong risk classifications process will have many result. The premium of healthy people will increase, perhaps uncontrollably
to compensate for the claims of unhealthy people. Thus, detailed medical information including genetic tests
information will help an insurer in
better and accurate assessments of risk
and avoid adverse selection.
FAIRNESS: Another
objective is to treat all existing policy holder and the new policy holders
fairly. To achieve this objective insurance company must set premiums at a level consistent with the risk
represented by the each proposed insured. Proper and fair discrimination can be done through precise estimation of
future lifetime and taking decisions regarding whether ti issue coverage and if
so the premium rate. Unfair discrimination will occur when no sound actuarial justifications or
reasonably anticipated claims
experiences can justify the
manner in which risks are classifieds is kept
or when an underwriting mis classifies a risk because a relevant piece
of information is kept out of
consideration. The above three
objective of risk classifications clearly indicate that an insurer requires detailed information of risk
under consideration. No the question arises
whether the detailed information includes the existing routine lab
reports like ECG and MRI scan or advanced genetic tests. It is not easy to
distinguish between genetic and non-genetic diseases.
The task force on Genetic
Information and Insurance of the
NIH-DOE, working group (US) of ethical, legal and social implications of human
genome research delivered a report on genetic information and health
insurance. This report stated: As a
practical matter it will become increasingly difficult to deal with genetic information as a special
and separate from other forms of health related information because diseases are increasingly understood as having both genetic and environment components”. There is no uniform organizations of genetic
tests and what constitutes genetic information. Different organizations have defined genetic
information indifferent ways.