Why Supreme Court of Canada is looking at risk-based underwriting

Does the federal government have the power to prohibit insurers from asking consumers questions that carriers say are material to their risk?

This question was recently put to the Supreme Court of Canada in a life insurance context.

“Risk-based underwriting is not bad for you,” said Christopher Richter, a partner with Torys LLP, on Oct. 10 during a Supreme Court of Canada hearing into whether the Genetic Non-Discrimination Act is unconstitutional.

Opponents of the law say that by restricting the underwriting questions an insurer may ask, the federal government is trying to regulate civil and property rights, which was made an exclusive power of the provinces by the 1867 Constitution Act.

Richter represents the Canadian Life and Health Insurance Association, which has intervener status in Canadian Coalition for Genetic Fairness v. Attorney General of Quebec, et al.

The Quebec Court of Appeal ruled in 2017 that the federal Genetic Non-Discrimination Act is unconstitutional. The court found that the “pith and substance” of the law is property and civil rights, which is an exclusive power of the provinces.

The Canadian Coalition for Genetic Fairness is appealing. At press time, the Supreme Court of Canada has not released its ruling.

The outcome of the appeal could affect brokers selling more than just P&C, because life insurance could get a lot more expensive, CLHIA warned. This is because people who discover through genetic testing that they have health problems might buy more life insurance coverage than they otherwise would have. Claims costs would rise but the clients buying more coverage would not be paying a premium that corresponds to risk, because the insurer is not allowed to ask questions about their genetic testing results, the CLHIA argued. So the carriers would have to increase premiums across the book of business to account for those increased claims costs.

The Genetic Non-Discrimination Act, a private member’s bill passed in a free vote during 2017, prohibits an insurer from requiring a person to undergo a genetic test as a condition of providing goods and services to that individual, entering into or continuing a contract, or offering or continuing specific terms or conditions in a contract.

“The pith and substance is about the regulation of risk-based underwriting by providing preferential treatment to persons who have received genetic test results indicating they have a genetic disease or a heightened risk,” Richter said during the Supreme Court of Canada hearing.

The law “creates a one-sided exception to the principle of equality of information,” Richter added. This is because it prohibits insurers from requiring applicants for insurance to disclose the results of genetic tests, he said, but it also lets people applying for insurance disclose the same information if it is to the applicants’ advantage.

For its part, the Canadian Coalition for Genetic Fairness argues that the law promotes health by not discouraging people from getting genetic tests. Therefore, it is a valid criminal law that is within the federal government’s jurisdiction, the coalition argues. The coalition’s reasoning is that if patients fear that results of genetic test will put them at a disadvantage when applying for insurance, they will not get such tests in the first place. Therefore, they would potentially be unaware of medical conditions that should be treated.

Strange as it may seem, the Attorney General of Canada is arguing that the Genetic Non-Discrimination Act is unconstitutional. Jody Wilson-Raybould, Canada’s attorney general at the time the bill was passed, had voted against it – along with several other Cabinet ministers.

The Attorney General of Canada argues that the non-discrimination law is about the obligation of people applying for insurance to properly inform insurers, which is governed by provincial regulation. In insurance contracts, the obligation to inform is part of the obligation of good faith. It is open to provincial regulators to address the use of genetic testing by the insurance industry, but the matter falls under provincial jurisdiction over property and civil rights, the Attorney General of Canada says.

Provincial insurance acts require applicants for insurance to disclose every fact that is within that person’s knowledge that is material to the insurance coverage provided, CLHIA wrote in its factum. Failure to disclose material facts can render the contract voidable.

The federal privacy commissioner supports the Genetic Non-Discrimination Act, arguing as an intervener that the purpose is to protect people’s privacy in relation to genetic information. Also supporting the law is the Canadian Human Rights Commission, which says the law has a valid criminal purpose by prohibiting compulsory genetic testing and the non-voluntary use and disclosure of genetic test results.

Tabled in 2015 by Senator Jim Cowan, the law also prohibits conducting a genetic test or using a person’s genetic test information without their consent. Breaking the law is punishable on indictment by five years in prison and/or a fine of up to $1 million.