The ban has been widely received as a necessary and fair change to life insurance underwriting practices, though it has not been without its detractors.
The reason for the ban has always been two-fold. Genetic testing is an important and useful medical procedure in detecting potential health complications, but when used as a means to inform life insurance underwriting, can lead to denied premiums, which can discourage people from both undertaking genetic testing and getting insured.
Financial Services Minister Daniel Mulino said: “Genetic testing is an important tool that can save lives through early detection and prevention. Australians should be able to access this testing with confidence, without concern it could limit their access to life insurance.”e,” Minster for Financial Services Daniel Mulino said.
“These exposure draft regulations, now open for public consultation, will provide greater clarity on how the ban will operate and strengthen the framework for compliance and enforcement.”
He added that the Labor Government is currently taking action to ensure the life insurance market operates fairly and that Australians are not discouraged from making informed decisions about their health.
As stated before, the ban has been generally well received across the industry, however, has not been without criticism. The loudest detractor has likely been the FAAA, who have highlighted their concern that the ban could negatively impact current policy holders.
Life insurance is a form of pooled insurance, where pricing is set and premiums are raised on the basis of the assessment of risk within the pool and claims experience applicable to that pool. If the level of risk within the pool increases and claims rise as a result, then premiums will naturally rise,” the FAAA said in a submission last year.
“Cross-subsidisation is also an important factor. If some of the members of the insurance pool are not paying the level of premiums that are warranted by the risks they present, then other members of the insurance pool will ultimately pay more. This is an issue of equity.”
ThoughHowever, the FAAA remains relatively isolated in its criticisms, with other professional associations such as CALI welcoming the changes.
According to Mulino, the government will be implementing the ban in two key ways:
- providing certainty to consumers, health practitioners, and insurers on how the ban applies, including in relation to specified genetic predispositions; and
- strengthening compliance and enforcement by confirming that strict liability offences and civil penalty provisions will be captured under the infringement notice scheme in the Insurance Contracts Act 1984.
“This reform delivers on the Government’s commitment to balance access to affordable life insurance with the health and wellbeing of Australians,” Mulino said.
The upcoming ban exists within the context of the Labor Government’s general quest to try and reform the financial industry within the country, particularly when it comes to advice, both general and risk related.
This has included the much delayed ‘Delivering Better Financial Outcomes’ (DBFO) legislation, which has, among other things, proposed a clamping down on lead generation practices, the government citing its role in the Shield and First Guardian collapse as the reason why.
This announcement comes as the Council of Australian Life Insurers (CALI) has called for government to allow for better access to life insurance.
Where the council has been welcoming to the ban on genetic testing, they have expressed clear opposition on the issue of lead generation, arguing it could inadvertently make it more difficult for Australians to access advice.
“Life insurance lead generation plays an important role in helping customers access information, compare products and obtain life insurance protection,” said CALI chief executive Christine Cupitt said..
“A blanket ban for life insurance risks limiting legitimate information and connections that support customers to build their financial safety net.”
She added it could hinder customers from reaching out through comparison websites, something she highlighted is a popular, convenient and safe way for people to receive basic financial information about life insurance.
“One in two Australians want personalised advice about life insurance and more people are turning to online tools, including market comparison sites, to learn about life insurance,” Cupitt said.
“The government should not cut off safe, regulated pathways that help Australians access life insurance.”
She concluded by arguing for an exemption for life insurers from any potential lead generation crackdown, and added the government needs to release the proposed DBFO legislation in full as soon as possible.
As for ban on genetic testing, something the industry can reliably say will be coming into force, consultations will close on 26 June before its slated introduction in October.
The FAAA’s position is entirely correct.
Allowing insurers access to adverse genetic test results would drive up demand for trauma cover, both in the number of applicants and the sums insured, leading inevitably to higher claims.
Insurers would need to raise premiums across the board, and those without genetic risk factors would, understandably, be unwilling to subsidise the increased cost of cover, creating a classic adverse selection spiral.
I am a massive advocate for trauma cover and my clients have (collectively) made claims in the millions. Premiums are already high and the last thing we (advisers) want is a repeat of what they did to Income Protection cover.