On July 10, 2020, the Supreme Court of Canada delivered its ruling that the Genetic Non-Discrimination Act, passed by the Federal Government in 2017, was constitutional and formed part of Canada’s criminal law.
Before we get to the decision, we should look back at the Act itself and think about whether it is good for society and its members. In a nutshell, the Genetic Non-Discrimination Act was designed to prevent insurance companies and other organizations from requiring an individual undergo genetic testing to obtain benefits and to prevent the forced disclosure of any testing already done by an individual. The idea behind the legislation is that with advances in DNA mapping, there may be a substantial benefit for individuals to obtain genetic testing in order to identify and manage disease. Before the law, allowing insurers to force disclosure was considered a deterrent for individuals to get testing that would otherwise be beneficial, and some observers worried that without a law, insurers could require testing as part of the insurance application process.
If you read the comments in any newspaper report on this ruling, you will see a near universal praise for the decision as a rare win for the little guy against the big bad insurers that are just out to screw you. After all, isn’t it obvious that an individual’s right to privacy should trump all other causes?
I might have thought the same thing if I hadn’t taken Frank Reynold’s course on ‘selection of risks’ and if my friend Sharon and I hadn’t discussed this exact issue five or so years back when the subject was at the forefront of the insurance industry and actuarial profession. The surprising answer for many is that when buying insurance, undisclosed facts that materially affect a policyholder’s risk of dying is bad public policy. Actuaries have always known that, which is why when you apply for life insurance you must be honest about your smoking and drinking. For larger policies, a nurse will come to your house to check your weight and how well your heart is pumping. It is common knowledge that if you lie on an insurance policy then when it comes time for your beneficiaries to collect their prize, they might be out of luck. It’s one thing to fudge your alcohol consumption down a few percent because you don’t keep track – it is a completely different thing to lie and say you are a non-smoker when it’s just not true.
There are a couple of key theories in underwriting insurance. First, insurance works when policyholders feel that they are paying a fair price for the protection that they receive. Although few policyholders could articulate the corollary to this principal, they are relying on the insurer to make sure that everyone buying the same policy as them broadly represent the same risk as them. Second, by sharing your personal information, the insurance company can make a reasonable assessment of your health risks and individuals wishing to purchase insurance are not at an unfair advantage to get a policy at an unreasonably low price – that is, everyone is placed in the appropriate policyholder group that represents their overall risk.
Insurers never intended to require testing that wasn’t already obtained by the applicant. The focus was entirely on having applicants share testing results already in their hands. This detail was lost in the media hype around the right to privacy and the malevolent overlords of Canada’s evil insurance empire. What could go wrong by denying disclosure of genetic tests already performed? Intuitively every non-smoker that eats a healthy diet and exercises regularly knows that they should get a better rate for insurance than the chain-smoking couch potato motorcycle daredevil that lives next door. Did anyone manage to explain that a key purpose of underwriting was to keep these two distinct risks in different insurance pools?
I can already hear defenders of the decision saying it is no big deal because the big rich insurance company can afford a few extra payouts for people that had some undisclosed illness like Huntington’s disease. While this might be true in the short-term, it’s a misunderstanding about how insurance works over the long-term. Over the long-term, insurers look at the total claims in a pool of policyholders and adjust the total price to cover not only the cost of the claims but also administrative expenses and profits. If a greater number of policyholders with hidden illnesses gain coverage at the ‘healthy’ rate of insurance – the cost to the entire pool goes up and all policyholders pay a little extra to compensate for the insurer’s inability to tell the healthy and unhealthy apart. The bottom line is that it won’t be the insurance company paying for the cost of the legislation – it will be other policyholders. Worse, if healthy applicants start to realize the underwriting system is no longer fair for them, they may forgo needed insurance to protect their beneficiaries – again, this is bad public policy.
Now before you get headstrong and march down to your local MP to argue that this legislation has not been thought through, let’s all take a deep breath. There are times when public policy comes ahead of good actuarial science. Underwriting life insurance based upon race has been outlawed for decades. In defined benefit pension plans, commuted values don’t factor in gender so females get a little less than they should and males get a little more (or a lot less/more depending how skewed the membership profile). My three boys will be happy when car insurers can no longer use gender in setting auto rates.
When I was young, I didn’t think much about privacy and avoiding unwanted intrusion from the government. Recent discussions about contact tracing apps reawakens us all to the trade-off between personal privacy and the public good. Laws can change and we can afford to give this law time to settle in and we can re-evaluate the trade-offs that we are making and decide later if our government got it right or wrong.
In the meantime, if I can, I am hoping to avoid genetic testing since finding out my future is not something on which I am keen. I prefer to remain optimistic that I have lots more time to pursue my passions and if it turns out that I don’t then that will be a problem for my beneficiaries and not me.