Impact of Genomics on Insurers - Part 10
How Will Genomics Impact Claims?
Progress in genomics is creating opportunities and threats for health and life insurers. In our market study, we asked insurance experts how they assess the impact on claims.
Synpulse industry survey
Synpulse has assessed how insurers across EMEA, APAC, and the Americas perceive the impact of genomics on their industry. In the case of both life and health insurers, only a small minority of the experts polled saw the biggest impact in claims management:
Similarly, only a small minority believed claims management to be the area with the greatest opportunities:
Impact on claims costs
Between one third (life insurance) and nearly half (health insurance) of participants saw developments in genomics primarily leading to an increase in claims costs. A substantial percentage, around one third, could not decide what kind of impact to expect, while only a small minority expected genomics to cause a decrease in claims costs.
The large percentage of undecided experts can be explained by the fact that not only mechanisms leading to an increase in claims costs are conceivable, but also mechanisms leading to a decrease.
Accumulation of bad risks due to direct-to-consumer genetic testing
As genetic testing becomes more widespread and affordable, information asymmetries between patients and insurers may increase the risk of accumulating bad risks: somebody learning about a significant genetic predisposition for a disease could apply for appropriate insurance cover without disclosing this information to the insurer. Direct-to-consumer (DTC) genetic testing is a particular threat, as it is typically performed outside any official medical record.
Impact of personalized medicine on health insurers
An important application of genomics is in personalized medicine. So-called companion diagnostics can reduce overall treatment costs by applying a specific treatment regimen only to those patients who are most likely to respond owing to their genetic make-up, and by tailoring drug dosage to obtain optimal treatment success while reducing side-effects.
Reliable studies on the cost savings created by companion diagnostics are only available for a small number of treatments. However, it has been shown that overall costs could be reduced significantly in some cases. For example, a study focusing on the treatment of breast cancer with Herceptin® found that testing patients for the overexpression of the HER2 protein reduced the costs per cured patient from around USD 70,000 to around USD 55,000 at testing costs of less than USD 400. Although more data is still needed for many other cases, we can assume that personalized medicine can potentially lead to improvements in population health and greater cost effectiveness.
Health insurers will face some interesting questions when it comes to covering for personalized medicine. For example, genome sequencing might lead to additional costs because of medical tests and other downstream actions that might be performed based on the result of the sequencing. Insurers therefore need to consider whether to cover a test, a treatment, or a combination thereof depending on overall impact on claims costs. The value assessment frameworks currently available need to be enhanced to cover the full spectrum of changes expected as a result of personalized medicine.
Personalized medicine can potentially lower the consumption of ineffective treatments by non-responders and raise it for responders. Health insurers might profit from falling costs as the whole treatment scheme moves from trial-and-error towards a more predictable approach better suited for outcome-based pricing models. Whether the reduction of inefficiencies will lower overall claims costs remains to be seen and needs to be closely observed.
Impact of gene therapeutic treatments on health insurers
Gene therapy treatments are typically very specific, as they intervene at or close to the molecular root cause of an illness. As a result, they can be very effective, but are typically rather expensive due to the smaller target group they have been developed for. Two recent therapies brought to the market have been priced at almost half a million and almost a full million USD per treatment respectively (Kymriah from Novartis, which targets a subtype of leukemia, and Luxturna from Spark Therapeutics, which targets a rare form of blindness). However, the lifetime costs of treating a chronic disease the classical way at the symptom level may be even higher, as additional costs can arise, such as lower productivity of the patient, and in some cases their relatives as well. Nevertheless, the high one-off costs of gene therapy certainly present a significant challenge for payers –in both public and private health systems.
On the one hand, health insurers will profit from a longer average human lifespan due to better treatments, as these extend customer longevity and hence premium volume. On the other hand, the impact on claims costs per insured is unclear, and may also depend on the type of coverage. For example, health insurers could see their claims costs increase in the medium term owing to more expensive treatments. On the long term, however, their claims costs may decline as treatments get more effective and gene therapy becomes more of a commodity that is available at lower cost than it is today.
Impact of increased longevity on life insurers
It is very likely that more effective treatments and preventive measures will push average life expectancy further toward the maximum human life expectancy. Not only this, but if successful interventions targeting the molecular mechanisms of the aging process itself someday become available, the maximum human life expectancy (which today is around 120 years) would increase. The possibility of this scenario has already been demonstrated in animal studies.
The impact of increased longevity on claims costs for life insurers depends heavily on the types of coverage in their portfolio. Especially in the case of annuities with monthly or annual pension payments until death, rising benefit costs are to be expected in the event of a further increase in life expectancy. Opposite effects are plausible for permanent life insurance, or even for term life insurance, if the insured event occurs later on average owing to more effective treatments.
As discussed in this article, the future impact of developments in genomics on claims costs for both health and life insurers can be high and the underlying mechanisms are complex. Therefore, we believe that health and life insurers should deal with the topic in a strategic fashion.