Business Economics and Public Policy Papers
Estimating Adverse Selection Costs from Genetic Testing for Breast and Ovarian Cancer: The Case of Life Insurance
Date of this Version
The Journal of Risk and Insurance
Genetic testing is a concern for insurers if they cannot use test results in underwriting. We model adverse selection in an insurance market with genetic testing for breast and ovarian cancer. Increased forces of mortality resulting from a family history of cancer or a positive test for a BRCA mutation are calculated. Using a Markov model, we estimate costs of adverse selection, assuming various testing and insurance purchase behaviors. Adverse selection should be controllable if companies apply strict underwriting rules, requesting cancer history and onset age for all first-degree relatives. If insurers fail to correctly identify the family history of the application and use it in pricing, adverse selection costs could become unbearable.
Subramanian, K., Lemaire, J., Hershey, J. C., Pauly, M., Armstrong, K., & Asch, D. A. (1999). Estimating Adverse Selection Costs from Genetic Testing for Breast and Ovarian Cancer: The Case of Life Insurance. The Journal of Risk and Insurance, 66 (4), 531-550. Retrieved from https://repository.upenn.edu/bepp_papers/5
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Date Posted: 27 November 2017
This document has been peer reviewed.