What would happen if the insurance company was unaware of important unfavorable information that was known to the applicants? In these instances, serious errors in risk classification would occur. Certain individuals would receive their insurance at unreasonably low cost. More claims would be filed than were expected, and, if a significant number of these risk classification errors were made, the financial status of the entire insurance pool would be adversely affected...
Attending physicians will probably begin to use new diagnostic tests that can identify genetic diseases and diseases with a genetic predisposition shortly after the tests are developed. As mentioned above, insurers have no current interest in ordering such tests themselves. Nonetheless, although they may prefer to avoid ordering genetic tests, it could be extremely important that insurers have access to prior test results. Why? If this information were unavailable to the insurer at the time of underwriting, then applicants who already knew, through tests performed by their attending physicians, that they were likely to experience early death or illness could buy large amounts of insurance coverage at prices that failed to reflect this increased risk. In the aggregate, this practice could involve disproportionately large numbers of applicants and/or highly significant amounts of insurance. The ensuring claims would markedly exceed projected losses, and everyone within the insurance pool would suffer.