Why silence isn't golden

Insurers may ask some intrusive questions but, Spencer Leigh argues, they do so to hold down the cost of cover

THE whole concept of life assurance, and indeed insurance in general, is that of a level playing-field: if the applicant knows something significant about himself, the insurer wants to know it too. Then the risks can be assessed fairly on their merits. The industry has a very good record: over 95 per cent of all applicants are accepted on standard terms. Only a few pay additional premiums and even fewer are declined.

On a level playing-field, an English batsman might have difficulty coping with Curtly Ambrose, but the situation would be 10 times worse on a bumpy village pitch. Yet this may happen to life insurers. For a variety of reasons, Government bodies and pressure groups would like to stop insurance companies asking for what they perceive as relevant information.

Last year, the Aids lobby won a victory that prevented life insurers asking about previous HIV tests. Now a life office can only ask someone if he is HIV positive. In France, legislation forces insurers to accept mortgage business from those who are HIV positive.

People who are HIV positive will be classified as disabled under the UK's new Disability Discrimination Act. This act covers insurance but extra premiums or rejection will still be possible if insurers can show "actuarial or other good reason" to justify the decision. At present, competitive underwriting is, I think, one of the strengths of the industry in that someone can apply to a variety of offices to obtain the best quote.

Then there are the vexed issues surrounding genetic testing. At present, this is only available for certain rare disorders such as Huntington's chorea and muscular dystrophy. If someone has the gene, then he or she is going to have a reduced life expectancy and will, in strict terms, be uninsurable. Around the corner are tests for other genetic disorders such as heart disease or cancer. Here the tests will show if you have a predisposition for a disorder. The Select Committee on Human Genetics has told the Association of British Insurers that it must have industry- wide regulations regarding genetic testing in place by June 1996 or face legislation. There is much discussion as to what those regulations should contain but I think there are two main considerations.

Firstly, it should be stated unequivocally that life insurers will not ask for genetic tests.

Secondly, we could ignore the results of genetic tests for policies giving up to pounds 50,000 cover. This limit would clearly have to apply to total cover from all policies held.

Such regulations would have to be subject to periodic review. We have no idea as to how the public will accept genetic tests in the future and what will become available. By the year 2010, individuals could be walking round with smartcards containing their genetic profiles. If an applicant has that level of knowledge about himself, then the life insurer will want it too.

Our critics invariably overlook that concessions cost money. The cost of these uneconomic terms has to come from somewhere. There may be cross- subsidy as the premiums are increased for new policyholders or endowment bonuses may be reduced.

Where will it all stop? A private member's bill in Holland proposes prohibiting insurers from asking questions about, or arranging examinations for, diseases for which no cure is available. This would rule out genetic and HIV testing and could even extend to diabetes and depression.

q Spencer Leigh is chief underwriter at Royal Insurance Life & Pensions. This column is based on a paper 'the Freedom to Underwrite' presented to leading insurance actuaries last week.