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Difficulty: MediumSources of Underwriting Information

An insurance company's home office is evaluating a new life insurance submission. The applicant checked 'no' for all medical history inquiries on the submitted forms. Upon pulling a Medical Information Bureau (MIB) file, the underwriter discovers a recent code indicating treatment for a significant cardiovascular illness. Based on the rules governing sources of underwriting information, which of the following is the appropriate course of action for the insurer?

  1. A
    Immediately reject the submission and void the contract, as the health answers on the forms are legally binding warranties that have been breached.
  2. B
    Categorize the cardiovascular illness as a morale hazard due to the nondisclosure and automatically apply a substandard premium rating without further inquiry.
  3. Conduct further investigation by ordering an Attending Physician's Statement (APS), because coverage cannot be declined based solely on data from the MIB.Answer
  4. D
    Direct the writing agent to unilaterally amend the health questionnaire to reflect the MIB findings before issuing the policy with a surcharge.

Answer

Conduct further investigation by ordering an Attending Physician's Statement (APS), because coverage cannot be declined based solely on data from the MIB.
The Medical Information Bureau (MIB) helps insurers uncover misrepresentations by sharing coded medical information from previous applications. However, to protect consumers, insurers are legally prohibited from using an MIB report as the sole basis for an adverse underwriting decision, such as declining an applicant or charging a higher premium. Instead, the underwriter must conduct further investigation by requesting an Attending Physician's Statement (APS) or requiring a medical exam to independently verify the condition.

Step-by-Step Solution

1
Analyze the underwriter's discovery.
The underwriter found a discrepancy between the applicant's clean medical history on the application and a cardiovascular code in the MIB report.
Identifying the conflict between different sources of underwriting information is the first step in risk evaluation.
2
Apply the rules governing the Medical Information Bureau (MIB).
Underwriting guidelines and MIB rules strictly prohibit insurers from declining coverage or increasing premiums based solely on MIB findings.
Understanding the legal limitations of the MIB prevents regulatory violations.
3
Determine the required next step for the underwriter.
The underwriter must use the MIB report as a prompt to gather more specific evidence from other sources, such as an Attending Physician's Statement (APS), to verify the actual medical condition.
An APS provides primary medical data from the applicant's own doctor, which can legally be used to make an adverse underwriting decision.

Key Concept

Permissible Use of MIB Reports in Underwriting
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Topics

Sources of Underwriting Information

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