Recent changes to when insurers can ask for applicants to disclose results of a genetic test took place on July 1 2019. One of our trusted Doctors asked me to illustrate what this all means and how it might affect their patients and even themselves if they were to change or reapply for cover. After having been though a government based screening program myself this is something I take a special interest in.

As of July 1 if you if you are applying for insurance benefits in excess of:

• Life and TPD cover over $500,000

• Trauma or Critical illness over $200,000

• Income protection over $4,000pm

When completing an insurance application an insurer will ask any questions that they deem relevant in determining the “risk” of you making a claim so that they can price accordingly. This is the core purpose of underwriting as ensuring that only acceptable levels of risk are taken on board protects the “pool” of funds (premiums paid by policy holders) protects existing members from higher than expected claims which would increase their premiums in turn. Increases in premiums then often lead to higher “lapse” rates where people cancel or move their cover elsewhere.

Insurance premiums are based on not only population risk but also the claims and lapse experience of those insured under the “book” itself. As newer “books” are created healthy and younger clients “shop” for a lower premium and leave the book for better alternatives while those unable to move due to ill health etc have no choice but to stay. This creates a problem and managing this is a constant battle and predicting the future, sometimes 30+ years ahead, is very difficult indeed. So it is understandable that insurers would be interested in genetic information.

Disclosures

A common question used during an insurance application is “Have you had a genetic test or considering having one in future”. Like many questions in this litigious society we live in, this is very carefully worded. If you have had genetic test and are applying for cover over the limits you would naturally answer this question. However, what does “considering” mean? Does this mean if you have ever had a thought about swabbing your cheek and send it off to 23andME you need to disclose this? and then consequently you would be given unfavourable terms? Well…not really.

Forgoing the fact that 23andME doesn’t really look for specific faults rather increased probabilities based on general traits Insurers can not apply unfavourable terms for you being curious. If you are awaiting results they might postpone a decision until they get these back as a precaution. What they will ask is WHY? Historically people don’t get Genetic testing for no reason. Putting aside the specific genetic test question for a moment allows to focus on the broader picture. A good example of this is “catch all” questions. My personal favourite “have you ever experienced and pain strain or disorder of the back or neck”. My 2 year old said “daddy my neck hurts” the other day. Is this to say that she should get a C Spine exclusion, not at all. Follow up questions on this then determine context and therefore real risk. My personal belief is that nobody can answer no to this question. Any genetic conditions are interwoven with any past medical investigations and family history. When considered in the broader context a question about genetic testing is ultimately irrelevant.

An insurer can not ask for a genetic test, full stop. They can request, pathology such as an MBA20 if there is call for it due to high levels of cover or other risk factors but this is time consuming and expensive for the insurer so while this does happen regularly, is not routine. Section 21 of the Insurance Contracts Act requires the applicant to disclose every matter that they know, or could reasonably be expected to know, is relevant to an insurer's decision to enter into a contract of insurance with them. This is a fluid concept as, for example, a Geneticist might have a deeper understanding of their family history and the consequent risk factors than say an apprentice electrician. This is what is known as the “reasonable person” test.

Putting aside the specific genetic test question there are also “catch all” questions. My personal favourite “have you ever experienced and pain strain or disorder of the back or neck”. My 2 year old said “daddy my neck hurts” the other day. Is this to say that she should get a C Spine exclusion, not at all. Follow up questions on this then determine context and therefore real risk. My personal belief is that nobody can answer no to this question. Any genetic conditions are interwoven with any past medical investigations and family history.

Loading, exclusion or decline

If the insurer identifies an increased risk in terms of a genetic test they will increase cost, not cover that eventuality or not offer cover at all. A good rule of thumb here is the 3 strikes policy. If you had, for example, a loading based on family history of heart problems (whether or not you experience symptoms yourself) an exclusion to past a knee issue and then results of a genetic test which identified a fault in BRCA1 (with no personal or family history) this would be a third strike and a full decline. However, if you then undertook preventative measures such as a full hysterectomy and mastectomy this would bring you back in line with population risk and cover would be offered with only the heart loading and knee exclusion.

Practical Underwriting

Let’s be clear here, insurers need and want customers, this is their product and core business. They have massive amounts of historical data that helps them determine risk based on all kinds of factors. If for example you applied for $10,000pm of Income Protection and had no other factors other than a positive BRCA2 fault test that warrants a loading(let’s ignore that a family history would have been why you went for that test) some insurers would offer a loading over the full amount, some would offer it only on the amount over the $4,000 moratorium. Changing the application would likely not remove the “knowledge” of this risk to the insurer so you can’t simply apply for $10,000, get a bad decision based on genetic test, and then alter to $4,000 to work around. You can however “blind underwrite” or pre assess with multiple insurers. A good insurance adviser should be able to not only know which insurers are more favourable to certain conditions but also which questions to ask so an application can proceed smoothly. Just a quick plug for NoR, we pre assess all insurance applications.

Never let financial doubt stand in the way of your health

If you feel the need to seek medical treatment or investigations but are considering postponing this for an insurance application DON’T. Early diagnosis and treatment is in most cases the best chance you have at living a long and healthy life. The catch all questions above will catch you out anyway. Look after yourself, act honestly, you have a contract with an insurer that says they need to do the same. If you are declined or excluded you have other options and an adviser can help with this.

Disclaimer: The information in this article is general in nature and doesn’t take into account your personal circumstances so should not be relied upon as personalised advice.

Indexation automatically increases your cover to help fight inflation. Here’s what it means for your cover and your premium.

Indexation is an optional benefit on life insurance policies designed to ensure you’ll always have the same financial freedom in the event of a claim.

Not all insurance policies offer indexation. But for those that do, it works by offering you an increase to the sum insured in your policy at each policy anniversary.

This increase is designed to help your insurance benefit keep up with the rising cost of living.

Insurers differ slightly, but generally speaking the benefit increase is calculated at policy anniversary, the benefit ‘sum insured will automatically increase by the greater of either;

•      The applicable current Consumer Price Index (CPI), or

•      by a fixed percentage the insurer has published in their PDS, generally between 3% and 5%.

One thing that’s important to know is that as your cover increases, the premium you pay will generally also increase.

Indexation is optional and whether you accept it is up to you.

If you’d like to decline it in any given year, you simply need to let your insurer know, usually within 30 days of your policy anniversary. You may even be able to stop indexation permanently, but bear in mind you may need additional medical checks if you wish to turn it back on.

Ever wondered how insurers work out the cost of your life insurance?

There are many factors that can impact the premium you pay, but there are 4 factors in particular you need to be aware of.

1. Your personal risks

• Dangerous occupations can attract a higher base rate for your insurance, even before any loadings are applied.

• Poor health (such as a high Body Mass Index, or BMI) as well as dangerous hobbies, may add what’s called a ‘premium loading’ to your cover – which means you pay a higher premium than someone who doesn’t have those risk factors.  Any loadings like these are recorded on your Policy Schedule

• In terms of your health and lifestyle, the core factors that can contribute to your risk, and therefore a potential premium loading or higher set of rates, include:

  • Smoking – past and current smoking behaviour

  • Medical history – any conditions you currently suffer from, or have previously suffered from, or hereditary factors that increase your risk of claim

  • Occupation – the danger posed by your job on your physical wellbeing

  • Hobbies – the danger posed by any high risk personal activities.

If your health improves or your lifestyle has changed recently, get in touch with your adviser to review your policy and determine if these loadings can be removed to help lower your premium

2. Your age and gender

• Life insurance premiums are predominantly based on the risk of certain events happening to you.  These risks increase with age as serious illnesses become more common as you get older

• Age-related risks can also differ for men and women, which is why premiums for men and women of the same age may be different. For example, women live longer than men on average, which is why in most cases life cover premiums are cheaper for women. 

3. The more protection you have, the higher the cost of your cover

Your cost is influenced by these important factors of your policy:

• The type of benefits that are payable on your policy (trauma, disability, death)

• The sums insured of those benefits

• How long you would receive those benefits for (i.e. your benefit period for income protection)

• The waiting period you’ve selected before your benefits are paid out (for income protection)

• Any optional extras you may have selected

4. Whether you’ve chosen to pay stepped or level premiums

For most policies, two premium structures are offered:

• A stepped premium is one where the cost of your cover is recalculated each year based on your age at each policy anniversary. Generally this means your premium will increase each year as you get older.

• A level premium is one where premiums are calculated based on your age when any cover started. Your premium is generally averaged out over a number of years, which means you avoid increases in your premium due to age at each policy anniversary. This means your cover is more expensive than ‘stepped premiums’ at the beginning of your policy, but generally gets cheaper (relative to stepped premiums) as your policy continues.

• It’s important to note that at policy anniversary the premium may still increase (even with level premiums), because age is just one factor that determines your premium. Other factors that impact premium (such as claims trends in Australian population) can result in a repricing of your insurance cover.

• When insurers reprice stepped or level premiums, they don’t do it for an individual policy within a specific group unless they do it for every policy in that group.

• Regardless of whether stepped or level premium is selected, premium rates and premium factors are not guaranteed or fixed and insurers have increased premium rates in the past and may increase in the future.

A number of other factors may influence your premium, including:

1. Where you live, because different state governments levy stamp duty differently.

2. The structure of your cover, such as whether you select to have your insurance as a ‘stand-alone’ product, or whether you have it linked.

3. The number of lives covered, you may be eligible for a group discount on your premium if your policy covers family or business partners.

4. The frequency you want to pay your premium, where paying your premium monthly can attract a loading which wouldn’t apply if you pay your premium annually.

5. Whether you’ve selected indexation, as a way of pegging your cover against cost of living increases.

Whether you’ve chosen any extra cost options for your policy, including things like accidental death covers, child covers and others.