Estimating Adverse Selection Costs in a Market with Genetic Testing for Breast and Ovarian Cancer

Abstract: Using data from the medical literature on age-specific and family-history specific incidence rates, we develop double-decrement models to evaluate the actuarial impact of a family history of breast cancer or ovarian cancer, and the impact of a positive test for the BRCA gene mutation. Increased forces of mortality are derived. It is found that females with some family histories of cancer and/or the presence of the BRCA mutation cannot be accepted at standard rates; depending on underwriting practice, most cases could be accepted at substandard rates. Then a Markov model is built to evaluate the likely effect of adverse selection resulting from women taking a genetic test without informing their insurer and consequently modifying their insurance purchase behavior. It is concluded that, at current testing rates, adverse selection should not be a major source of concern if companies apply strict underwriting rules, requesting cancer history and age at onset for all first degree relatives.

Keywords: Term Insurance, Breast and Ovarian Cancer, Genetic Testing, Adverse Selection