Genomics: What Does the Decoding of Genetic Material Mean for Insurers?
Genomics, personalized medicine, and gene therapy are making rapid progress. Some people are already having their genetic material examined and are gaining knowledge about their genetic risk factors. What does it mean for insurers if this soon becomes the norm and is used for the prevention, diagnosis, and treatment of diseases?
Thanks to rapid technological advances, the costs and processing time for sequencing the genome of a single person have fallen dramatically in recent years. As a result, the number of sequenced human genomes and our knowledge of the effects of individual genetic variations have increased exponentially. Genetic tests are no longer used only in academic laboratories but are accessible to almost everyone worldwide via the internet. Even in countries with legal restrictions, many people have already gained insight into their own genome. This brings us closer to an age in which everyone will have their full genome sequenced. These developments will have an impact on the healthcare system and all related industries, including health and life insurance.
As part of a market study, Synpulse conducted a worldwide online survey with insurance industry representatives to find out how they assess the impact of genomics on their industry. People working in life and health insurance were interviewed. The following figure shows the results of our survey.
Impact on products and pricing
More than half of the respondents see the greatest potential in new insurance products and services. At the same time, however, about one third feel the greatest threat to be in the area of product management, including pricing. Pricing is particularly subject to on various potential impacts on claims expenditure, which we will discuss in more detail later in this article. Our focus here is on discussing the potential for new products and services.
New types of cover
Diagnostics at the genetic and genomic level have become more powerful over recent years. Despite the growing potential to improve treatment outcomes and prevent disease through a more personalized approach, acceptance is still low. There are several reasons for this. First, many care providers do not have sufficient knowledge of the methods available or the skill to interpret their results. On the other hand, the more advanced techniques in particular are often only available from a few, highly specialized providers. Thirdly, payers are often reluctant to cover the costs, especially if they are for more advanced, and thus (even) more expensive techniques.
These problems could be at least partly addressed by new insurance products that specifically cover genetic diagnostics. Ideally, they would be offered in combination with guaranteed access to networks of human geneticists who would be able to choose the optimal testing approach and interpret the results appropriately. The insurance experts surveyed in our market study confirm this potential.
Interestingly, however, only around 20% of those surveyed see a high potential for insurance products that specifically cover gene therapy. Our explanation for this is that gene therapy is still in its infancy – only very few gene therapies are currently available off the shelf. They only recently came onto the market and are targeted at rare diseases. We assume that the perceived potential for specific insurance cover will grow in the coming years as gene therapy gains a stronger foothold.
New value-added services
If a person is aware of his genetic particularities, he is immediately faced with the question of how he can derive useful information from this data. The solution essentially consists of three components: firstly, the data must be mapped against the current body of scientific knowledge. Secondly, it is important to derive actionable insights from this comparison. Thirdly, if meaningful measures can be derived, they must be implemented sustainably and efficiently. Insurers could help customers to achieve their goals in each of these steps by providing the services they need to prevent health problems, find the most accurate diagnosis and optimal treatment for health problems that have already occurred, and lead lifestyles that maximize well-being.
Impact on medical underwriting
Most of the experts surveyed in our research see the greatest threat to life and health insurers as being in medical underwriting and portfolio management. However, almost a quarter consider medical underwriting to be the part of the value chain with the greatest opportunities. Realizing the latter requires solid actuarial models to link genetic information and risk. Such models are not always available, however.
With the increasing spread and affordability of genetic testing, information asymmetries between policyholders (patients) and insurers can become a risk: anyone who learns of a significant genetic predisposition to a disease can apply for appropriate insurance cover without providing the insurer with this information. Genetic testing is a particular threat to end users, as it is usually carried out outside the official medical history.
Faster and more accurate risk assessment
Individually priced diagnostic or predictive genetic test results could be used by both life and health insurers in medical underwriting to assess risks more accurately. This can lead, for example, to the premium in a risk group being adjusted accordingly or an exclusion from benefits being agreed if an applicant carries certain genetic variants that are known to influence the insured risk.
In the ideal case, medical underwriting for appropriately designed products could be entirely based on the submission of the genetic test results, which would allow the applicant a simple and transparent underwriting process.
Impact on claims
Between one third and half of the experts surveyed believe that developments in genomics could lead to an increase in claims expenditure. Around one third are uncertain as to what effects can be expected, while only a small share believes that advances in genomics will lead to an increase in claims. The large proportion of indifferent opinions can be explained by the very different conceivable effects. These include those discussed in the previous section for medical risk assessment. More factors are also considered and discussed below.
More efficient treatments
The total cost of medical treatment could be reduced by personalized medicine. Patients react differently to certain drugs or therapies due to their genetics. Accordingly, very promising therapies can be carried out in a targeted manner. The dosage of a medication can also be adjusted to a maximum effect with simultaneous minimization of the side effects. Health insurers could benefit from lower costs as a result. This is because the entire treatment scheme is evolving from an approach based on trial and error to a more predictable one that offers scope for success-based pricing models.
However, reliable studies on cost savings achieved by accompanying genetic diagnostics are only available for a small number of treatments. In some cases, however, it has been demonstrated that treatment costs have been significantly reduced. For example, a study on breast cancer treatment with Herceptin showed that the cost per cured patient could be reduced from around USD 70’000 to around USD 55’000 with test costs of less than USD 400. Although more data is needed for many other cases, we believe that personalized medicine can improve public health and increase cost-effectiveness.
The health insurance companies will be confronted with some interesting questions regarding the coverage of personalized medicine. For example, genome sequencing and the downstream measures justified by it could also lead to additional costs. Health insurers therefore need to consider whether to cover a test, a treatment or a combination of both as part of a cost efficiency function. The currently available assessment frameworks need to be extended to cover the full spectrum of changes expected from personalized medicine.
More effective treatments
In the case of health insurers, benefit expenses could increase in the medium term due to more expensive treatment costs but decrease in the long term due to more effective therapies.
It is also likely that average life expectancy will continue to rise as a result of more effective treatments and preventive measures.
In fact, if the molecular mechanisms of the ageing process can be influenced, as has been shown in animal experiments, the maximum human life expectancy, which today is around 120 years, could be increased. The impact on the benefit burden for life insurers depends on the types of cover in their books. Especially in the case of pension insurances with monthly or annual pension payments until death, a further increase in life expectancy is expected to lead to rising benefit costs. Reverse effects could occur in term life insurance if, on average, the claim occurs later due to more effective treatment.
Gene therapy treatments are usually very specific because they intervene at or near the molecular cause of a disease. This can make them very effective. However, they are usually still expensive due to the smaller target group for which they were developed. Two recently launched therapies have been estimated at nearly half a million USD per treatment, or nearly a million USD per treatment («Kymriah» from Novartis to treat one type of leukemia, and «Luxturna» from Spark Therapeutics to treat a rare form of blindness). Depending on the disease, however, the total cost of years of traditional treatment for a chronic condition may be even higher, especially as many chronic conditions can entail additional costs, such as loss of patient productivity and, in some cases, loss of family members. Nevertheless, the high one-off costs for gene therapy pose a great challenge for the cost bearers.
Genomics on the agenda of insurers
Half of the experts interviewed said that genomics was high on their employer's agenda – in other words, concrete steps could be taken. The other half of respondents said that their employer had not yet recognized the importance of the issue and had not decided on any concrete measures. Since the majority of the surveyed experts agree that significant effects on health and life insurers are to be expected, the conclusion is probably not wrong: it makes sense for insurers to deal with the topic in a strategic way!