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Genetic Screening and Price Discrimination in Insurance Markets

Author

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  • Michael Hoy

    (Department of Economics, University of Guelph, Ontario, Canada)

  • Peter Lambert

    (Department of Economics, University of York, United Kingdom)

Abstract

Basing insurance prices on the results of an imperfect screening test to identify risk types can reduce or increase aggregate discrimination across insureds. We present a powerful and general new framework of analysis to examine this issue, drawing upon recent work which uses decomposable inequality indices to measure vertical and horizontal inequity in taxation. We find that, whilst improved test performance inevitably reduces vertical discrimination (in the average prices faced by different risk types), even very accurate tests can lead to substantial horizontal discrimination (within risk types) and enhanced overall discrimination. These conclusions are shown to be robust to a range of different value judgements about how to aggregate individual discriminatory effects and to be particularly relevant to the case of genetic screening. The Geneva Papers on Risk and Insurance Theory (2000) 25, 103–130. doi:10.1023/A:1008745627439

Suggested Citation

  • Michael Hoy & Peter Lambert, 2000. "Genetic Screening and Price Discrimination in Insurance Markets," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 25(2), pages 103-130, December.
    • Handle: RePEc:pal:genrir:v:25:y:2000:i:2:p:103-130
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    Cited by:

    1. Maureen Durnin & Michael Hoy & Michael Ruse, 2012. "Genetic Testing and Insurance: The Complexity of Adverse Selection," Working Papers 1208, University of Guelph, Department of Economics and Finance.
    2. Michael Hoy & Michael Ruse, 2005. "Regulating Genetic Information in Insurance Markets," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 8(2), pages 211-237, September.
    3. Hoy, Michael & Huang, Rachel J., 2017. "Measuring discrimination using principles of stochastic dominance," Journal of Economic Theory, Elsevier, vol. 167(C), pages 39-52.
    4. Karlsson Linnér, Richard & Koellinger, Philipp D., 2022. "Genetic risk scores in life insurance underwriting," Journal of Health Economics, Elsevier, vol. 81(C).
    5. Rob van der Noll, 2006. "The Welfare Effects of Discrimination in Insurance," Tinbergen Institute Discussion Papers 06-012/1, Tinbergen Institute.
    6. Michael Hoy & Michael Ruse, 2008. "“No Solution to This Dilemma Exists”: Discrimination, Insurance, and the Human Genome Project," Working Papers 0808, University of Guelph, Department of Economics and Finance.

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