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Difficulty: HardSources of Underwriting Information

An individual submits an application for a substantial life insurance policy, indicating no history of cardiovascular issues. Upon running a routine background check, the underwriter receives a report from the Medical Information Bureau (MIB) containing a code that suggests the applicant was previously treated for severe hypertension. The insurer is concerned about this undisclosed risk. Under standard underwriting guidelines and consumer reporting laws, which of the following is the legally required course of action for the insurer?

  1. A
    Send an immediate adverse action notice declining coverage, as permitted by the Fair Credit Reporting Act when undisclosed medical risks are discovered.
  2. B
    Correct the health history section of the original application to include the condition and process the policy with a higher premium rating.
  3. Order an Attending Physician's Statement (APS) to confirm the diagnosis, because MIB codes cannot be used as the sole justification for declining an applicant.Answer
  4. D
    Terminate the underwriting process and void the application for fraud, because all health statements on an insurance application are guaranteed to be absolutely true as warranties.

Answer

The insurer must seek independent medical verification, such as ordering an Attending Physician's Statement (APS), because MIB information cannot be the sole basis for an adverse underwriting decision.
The correct answer accurately reflects the primary limitation of the Medical Information Bureau (MIB). The MIB functions as an alert mechanism for underwriters to identify potential discrepancies in an applicant's stated medical history. However, to protect consumers, MIB regulations strictly forbid insurers from declining a risk, applying a surcharge, or taking any other adverse underwriting action based solely on an MIB code. Instead, the underwriter must use the MIB report as a prompt to investigate further, which typically involves requesting an Attending Physician's Statement (APS) to obtain verified, detailed medical records directly from a healthcare provider.

Step-by-Step Solution

1
Analyze the role and limitations of the Medical Information Bureau (MIB) in the underwriting process.
Identify that MIB reports serve as an alert system to detect potential omissions, but cannot be the sole basis for declining coverage or increasing premiums.
MIB procedural rules protect consumers from being denied insurance based purely on coded database entries without proper clinical verification.
2
Evaluate the proposed alternative actions against state insurance regulations and contract law.
Determine that the insurer cannot unilaterally alter the application, nor can they void the application based on warranties.
Application modifications require the applicant's initials, and statements on an application are representations, not warranties.
3
Determine the legally compliant next step for the underwriter.
The insurer must obtain an independent source of medical information, typically an Attending Physician's Statement (APS).
An APS provides direct clinical evidence from the applicant's doctor, which can legally justify a subsequent underwriting decision if the hypertension is confirmed.

Key Concept

Limitations on using Medical Information Bureau (MIB) reports for adverse underwriting decisions
Estimated Time:1m 30s
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Topics

Sources of Underwriting Information

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