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Difficulty: MediumSources of Underwriting Information

An underwriter is reviewing a life insurance application and orders an investigative consumer report to gather information about the applicant's character, reputation, and lifestyle. The producer's accompanying Agent's Report notes that the applicant accidentally left a question blank regarding participation in hazardous activities.

After reviewing the completed investigative report, the underwriter decides to issue the policy, but at a significantly higher substandard premium rate.

Under the Fair Credit Reporting Act (FCRA) and general underwriting principles, which of the following statements correctly identifies the required procedures in this scenario?

  1. The insurer must provide the applicant with an adverse action notice containing the name and contact information of the reporting agency that supplied the investigative report.Answer
  2. B
    Because the policy was ultimately approved rather than rejected, the insurer is exempt from the adverse action notification procedures under the Fair Credit Reporting Act.
  3. C
    The producer is authorized to unilaterally fill in the blank application question regarding hazardous activities using the information discovered in the report.
  4. D
    The findings regarding the applicant's character and lifestyle are considered absolute warranties, allowing the insurer to void the contract without notification.

Answer

The insurer must provide the applicant with an adverse action notice containing the name and contact information of the reporting agency that supplied the investigative report.
Under the Fair Credit Reporting Act (FCRA), if an insurance company takes an adverse action (which includes denying coverage or charging a higher premium rate) based on information in a consumer report or investigative consumer report, they must provide the applicant with an adverse action notice. This notice must explicitly include the name, address, and phone number of the reporting agency so the consumer can exercise their right to view and dispute the report.

Step-by-Step Solution

1
Analyze the underwriter's decision
The underwriter approved the policy but at a higher substandard premium rate based on an investigative consumer report.
Identifying the outcome is necessary to determine which regulations apply.
2
Apply the Fair Credit Reporting Act (FCRA) rules
Charging a higher premium is legally defined as an 'adverse action' under the FCRA.
The FCRA requires specific disclosures when adverse actions are taken based on consumer reports.
3
Determine the required procedure
The insurer must supply the applicant with the name and address of the agency that generated the investigative report.
This allows the consumer to contact the agency and verify or dispute the accuracy of the information.
4
Evaluate general underwriting constraints on the producer
The producer cannot fill in the missing information unilaterally.
Insurance principles strictly dictate that any changes or additions to an application must be acknowledged and initialed by the applicant.

Key Concept

Fair Credit Reporting Act (FCRA) Compliance in Underwriting
Estimated Time:1m 15s
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Topics

Sources of Underwriting Information

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