The Genetic Non-Discrimination Act and its Impact on Life Insurance

One of the many advancements in medicine has been the use of genetic testing in determining the probability that an individual will develop a life- threatening illness or condition.   Knowing that you or your children are not at risk of a major illness can be of great comfort while knowledge to the contrary can be of great value in preventative treatment and planning.  There was a growing concern, however, that individuals would be very reluctant to undergo genetic testing if knowing the results could affect their ability to properly insure themselves or impact their opportunities for employment.  As a result, a private member’s bill, Bill S-201, was introduced in the senate resulting in the Genetic Non-Discrimination Act being recently enacted into law.

What does the Act do?

It is now illegal for employers, insurance companies, or any other entity or individual to require anyone to undergo genetic testing or to disclose the results of a genetic test before entering into a contract which provides goods or services.  Now, if you apply for life, disability or critical illness insurance living benefit coverage, you cannot be denied coverage due to the results of a genetic test.  Insurance companies and their agents are also prohibited from “collecting, using or disclosing” the results of a genetic test without an individual’s written consent. Penalties for not complying with the new law are severe.

It is interesting to note that the insurance industry in Canada has never required an applicant to undergo genetic testing in order to underwrite an insurance application.  What the underwriters did require, however, was that if an applicant did have prior genetic tests that the results of those tests be disclosed.  While the new legislation was being considered before the House, the Canadian Life and Health Insurance Association (CLHIA) announced that the industry would voluntarily agree not to ask for genetic test results for life insurance coverages up to $250,000 which represented approximately 85% of all applications.

While many are hailing the new legislation as protective of an individual’s right to privacy, the Act is proving to be somewhat controversial with many industry observers and legislators expressing concern for a number of reasons.  Even prior to the bill becoming law, the Trudeau government expressed doubt as to the law’s constitutionality.  Here are the areas of concern with the new Act from some of the different stakeholders – the life insurance industry, the Ministry of Justice, and the Canadian Institute of Actuaries:

Conflict with provincial law

The Insurance Act of each province provides that any material fact relevant to an insurance application must be disclosed.  The current health and probable future health of an applicant is certainly relevant when purchasing life or disability insurance. As a result, the new Act is in direct conflict with provincial legislation.  Up until now, the regulation of insurance contracts has been strictly a provincial matter.

Reverse discrimination?

It could be argued that this Bill is somewhat discriminatory as it provides those who undergo genetic testing greater rights and protections than those who don’t.  An applicant for insurance knowing their higher risk factors due to genetic testing could potentially select against the insurance company by acting upon the incentive to buy more insurance at what would be lower than market rates.

Penalties for violations

The minister of justice has expressed concerns that Canada is deviating from its normal approach in enforcing laws against discrimination. Unlike other penalties for discrimination such as race, sex or disability, the consequences of violating the Genetic Non-Discrimination Act is up to $ 1 million in fines and 5 years imprisonment.  This is unusual to say the least.

Effect on premiums

The Canadian Institute of Actuaries (CIA) is of the opinion the new Act will result in higher premiums.  As a result of the insurance industry being restricted in obtaining full disclosure necessary for underwriting purposes, the CIA stated that their research indicates that premiums for males could go up by 30% and for females 50%.

Increased premiums, adjustable coverage?

 There are some who feel that the new legislation may receive a court challenge in the future for any of the reasons stated above.  For now, however, genetic discrimination is banned in Canada.

This is one more item that can be added to the growing list of challenges faced by the life insurance industry in pricing and providing guaranteed, competitive products.  Life insurance companies are already dealing with the effect of low interest rates and the impact that has on cost for the consumer.  Also, with the higher reserves required for long term risks, some insurers may feel that given this new legislation they could no longer profitably provide long term competitively priced products.

Faced with the combination of higher cost and reduced choice, anyone who is contemplating purchasing or reviewing their insurance in the near future should definitely do so as soon as possible.  For now, fully guaranteed products at a fair price are the norm in Canada.  Whether or not this changes as a result of the Genetic Non-Discrimination Act remains to be seen.