Abstract This chapter addresses the complex issue of the use of genetic advances by health insurance. Technical innovation in medical care in general generates a great deal of interest and controversy. Of particular interest is the role of insurance markets (or public insurance) in influencing the adoption of medical innovations. An additional important factor in the context of genetic advances, such as the development of new genetic tests, is the impact of regulations prohibiting insurers from using test results directly as relevant factors in the design and pricing of insurance contracts. Such regulations, of varying force, have been adopted throughout much of Europe. The chapter discusses how such regulations may affect the way that genetic advances affect the adoption of genetic tests and related health care strategies, and what impact this could have on both insurers and consumers.

There is a prospect of substantial advancements in the understanding of the relationship between disease and genetics at least in the medium term to long term future. In this paper we consider the implications on two aspects of behaviour - surveillance to improve the chances of early detection of disease onset and preventive actions to reduce the probability of onset - that may change as a result of the acquisition of information from genetic tests. We argue that there are problems for both private insurance regimes, with risk-rating allowed according to genetic type, and public insurance regimes (or a private insurance system with an effective community rating regulation) in generating potential health benefits from increased genetic information. In the public regime appropriate signals to obtain genetic information are not always provided while in the private regime premium risk can block otherwise fruitful acquisitions of this information. In both regimes moral hazard considerations can blunt the adoption of otherwise useful information with the further problem for public insurance of possibly encouraging excessive adoption of genetic testing.

This paper considers moral hazard in insurance markets when voluntary monitoring technologies are available and insureds may choose the precision of monitoring. Also privacy costs incurred thereby are taken into account. Two alternative contract schemes are compared in terms of welfare: (i) monitoring conditional on the loss with only the insurance indemnities based on the moni- toring data, and (ii) unrestricted monitoring with both the premiums and the indemnities depending on the data. With any contract scheme some monitor- ing will be optimal unless the privacy costs increase too fast in relation to the precision of the monitoring signal. In the benchmark situation (without pri- vacy costs) relying completely on both signals (monitoring and the outcome) informative of effort (ii) maximizes welfare. In the presence of privacy costs, the contract with conditional monitoring (i) might dominate the contract which fully includes the outcome and the monitoring signal into the sharing rule (ii). Apart from the direct effect of restricting privacy costs only to the state of loss, there are also an additional indirect incentive and a risk-sharing effect with this contract. Letting the individuals choose the precision of the monitoring technology at the time they reveal the data (ex post) is ine±cient with either contract scheme.

This paper examines the implications of insurers’ offering a voluntary monitoring technology to insureds in automobile insurance markets with adverse selection and without commitment. Under the consideration of the inherent costs related to the loss of privacy, the paper analyzes the incentives of insureds to reveal information, whereby they can decide how much or what quality of information to reveal. It is also allowed for the possibility that high risk individuals might mimic low risk individuals. The resulting market equilibria are characterized and it is shown, that it might be optimal for insureds to reject the monitoring technology, but also that under certain conditions, which are specified in the paper, it might be optimal for insureds to reveal complete information. Concerning the welfare effects of introducing voluntary monitoring of insureds, if low risk individuals reject it, there will be no change to either risk type. If they accept it, this will make them better off and high risks may either be made better off or worse off depending on the initial equilibrium before a monitoring technology is offered. Unless it is optimal for individuals to reveal either zero or complete information, an all-or-nothing nature of the monitoring technology will not be efficient.

There is a prospect of substantial advancements in the understanding of the rela- tionship between disease and genetics at least in the medium term to long term future. In this paper we consider the implications on two aspects of behaviour - surveillance to improve the chances of early detection of disease onset and preventive actions to reduce the probability of onset - that may change as a result of the acquisition of information from genetic tests. We argue that there are problems for both private insurance regimes, with risk-rating allowed according to genetic type, and public in- surance regimes (or a private insurance system with an 'eective'community rating regulation) in generating potential health bene…ts from increased genetic information. In the public regime appropriate signals to obtain genetic information are not always provided while in the private regime premium risk can block otherwise fruitful acqui- sitions of this information. In both regimes moral hazard considerations can blunt the adoption of otherwise useful information with the further problem for public insurance of possibly encouraging excessive adoption of genetic testing.