Modelling Adverse Selection in The Presence of a Common Genetic Disorder: the Breast Cancer Polygene

Abstract

The cost of adverse selection in the life and critical illness (CI) insurance markets, brought about by restrictions on insurers' use of genetic test information, has been studied for a variety of rare single-gene disorders. Only now do we have a study of a common disorder (breast cancer) that accounts for the risk associated with multiple genes. Such a collection of genes is called a polygene. We take two approaches to modelling the severity of adverse selection which may result from insurers being unable to take account of tests for polygenes as well as major genes. First, we look at several genetic testing scenarios, with a corresponding range of possible insurance-buying behaviours, in a market model for CI insurance. Because a relatively large proportion of the population is exposed to adverse polygenic risk, the costs of adverse selection are potentially much greater than have been associated with rare single genes. Second, we use utility models to map out when adverse selection will appear, and which risk groups will cause it. Levels of risk aversion consistent with some empirical studies do not lead to significant adverse selection in our model, but lower levels of risk aversion could effectively eliminate the market.

The impact of known breast cancer polygenes on critical illness insurance

“…We model the adverse selection costs arising from restricting the use of genetic test information in critical illness insurance underwriting in light of new European legislation banning the use of gender for insurance underwriting. In this setting we confirm the overall conclusion of Macdonald & McIvor (2009) that the polygene confers higher adverse selection risk than the BRCA genes. We establish that their three-gene polygenic model does not overly inflate the insurance costs attributable to a polygenic component of breast cancer risk under a model with 147 polygenes.…”

“…The costs involved look comparable to those in Macdonald & McIvor (2009). However our model differs from theirs in a number of ways, key of which is the European Union ruling described in Section 4.…”

“…Although the reduction in the portfolio of insured lives by any individual low risk life increases the average risk by a smaller amount than the gain of a high risk Macdonald & McIvor (2009), that the bigger part of adverse selection cost is down to the polygene.…”

“…The model is illustrated in Figures 7 and 8. Different scenarios are modelled to show the effects of uncertain parameters as follows: (a) The rates of going into a tested state are those used by Macdonald & McIvor (2009) the same standard rate, half the standard rate or do not buy at all. High risk lives, regardless of the size of market, will buy at rate 0.25 per annum which we take to represent a 'Severe' level of adverse selection; or at rate 0.1 per annum which we consider to be 'Moderate' adverse selection.…”

“…appropriate premium for a BRCA0 life with average relative risk When tested lives consider whether they are getting a cheap or expensive rate, it will be with reference to this Table 18). Macdonald & McIvor (2009) used the mode of their distribution as the centre.…”