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Difficulty: HardSources of Underwriting Information

An entrepreneur submits an application for a large key-person life insurance policy, indicating no history of medical issues on the health questionnaire. Upon reviewing the file, the assigned underwriter retrieves a Medical Information Bureau (MIB) report that contains a code pointing to a previously diagnosed respiratory disorder. Confronted with this discrepancy, which course of action is legally and procedurally compliant?

  1. A
    Instruct the writing agent to alter the health questionnaire on the original application to include the respiratory disorder before continuing the evaluation.
  2. B
    Deny the coverage immediately, because statements made on the health questionnaire are considered legal warranties that are breached by any material omission.
  3. Order an Attending Physician's Statement (APS) to verify the applicant's true medical history, as MIB data cannot be used as the exclusive basis for an adverse underwriting decision.Answer
  4. D
    Classify the applicant's intentional omission as a physical hazard and utilize the MIB code to issue the policy with a substandard premium rating.

Answer

The underwriter should order an Attending Physician's Statement (APS) to verify the applicant's true medical history.
The Medical Information Bureau (MIB) helps uncover errors and omissions, but its rules strictly prohibit insurers from declining a risk or charging a higher premium based solely on an MIB code. The underwriter must conduct further investigation, such as ordering an Attending Physician's Statement (APS), to independently verify the medical history before making an adverse decision.

Step-by-Step Solution

1
Identify the conflict between the application and the underwriting source.
The application shows no medical history, but the MIB report indicates a previous respiratory disorder.
Recognizing discrepancies is the primary purpose of utilizing multiple sources of underwriting information.
2
Evaluate the rules governing Medical Information Bureau (MIB) reports.
MIB rules explicitly prohibit member insurers from making adverse underwriting decisions (like declining coverage or increasing premiums) solely based on information in an MIB report.
Understanding the legal limitations of each underwriting source prevents non-compliant adverse actions.
3
Determine the correct procedural next step for the underwriter.
The underwriter must obtain independent medical verification of the condition, typically by ordering an Attending Physician's Statement (APS) from the applicant's doctor.
An APS provides detailed, legally actionable medical records that can be used to make a definitive underwriting decision.
4
Analyze why the alternative actions are non-compliant.
Unilateral application changes by agents are forbidden, application statements are representations rather than warranties, and dishonesty is a moral hazard, not a physical one.
Ruling out distractors confirms the required multi-step knowledge of insurance law and underwriting principles.

Key Concept

Limitations on using MIB reports and independent verification procedures
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Topics

Sources of Underwriting Information

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