Life insurers must address the implications of genetic testing, which is likely to become more widespread as costs fall, according to a discussion paper from the Actuaries Institute.

Co-authors Jessica Chen and Alan Doble warn the long-term viability of the industry is at stake. Applicants who do not disclose health risks and consumers pulling out because genetic tests indicate they are unlikely to suffer heritable diseases could destabilise the sector.

“This creates a fundamental tension between the desire for insurance providers to be inclusive and not discriminate between insurance applicants, and the sustainability of insurance companies’ business models in the presence of information asymmetry and potential anti-selection,” the paper says.

 “Australian health insurance is community rated, and take-up is encouraged by tax incentives, thereby increasing the size of the risk pool and limiting anti-selection risk.”

The industry’s current approach to genetic testing is governed by a set of guidelines issued by the Financial Services Council, rather than by government regulations.

The guidelines prohibit insurers from requiring applicants to take genetic tests and discriminating if people refuse to do so.

But insurers can request the results if applicants have already taken tests.