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Difficulty: HardSources of Underwriting Information

While reviewing a file for a $500,000 whole life policy, a home office underwriter notices a significant discrepancy. The applicant answered "No" to all questions regarding cardiovascular issues on the medical history portion of the application. However, a routine Medical Information Bureau (MIB) inquiry returns a code indicating the applicant was previously treated for severe hypertension. If the insurer ultimately wants to deny coverage based on this undisclosed condition, which of the following actions MUST the underwriter take?

  1. Order an Attending Physician's Statement (APS) or medical exam to independently verify the condition, because MIB data cannot be used as the sole basis for declining an applicant.Answer
  2. B
    Instruct the writing agent to unilaterally correct the medical history section of the application to align with the MIB report before issuing a formal denial.
  3. C
    Deny the coverage immediately and void the application, since all medical statements provided by the applicant are legally considered warranties and must be absolutely true.
  4. D
    Identify the applicant's omission as a physical hazard and issue the policy with a premium surcharge based strictly on the MIB report codes.

Answer

Order an Attending Physician's Statement (APS) or medical exam to independently verify the condition, because MIB data cannot be used as the sole basis for declining an applicant.
The correct answer accurately reflects the procedural requirement that MIB information acts as an alert system for underwriters, not a definitive diagnostic tool. Because the MIB only contains coded information from prior applications, insurers are contractually prohibited from using it as the sole reason to decline an applicant, charge a higher premium, or modify coverage. The underwriter must seek independent confirmation, such as an Attending Physician's Statement (APS), to substantiate the medical condition before taking any adverse action.

Step-by-Step Solution

1
Analyze the rules governing the use of Medical Information Bureau (MIB) data in underwriting.
Identify that the MIB explicitly prohibits member insurers from using its coded reports as the sole justification for declining an applicant or charging a higher premium.
This procedural rule protects consumers from being penalized solely based on coded data shared between insurers without independent, up-to-date medical verification.
2
Determine the legally compliant follow-up procedure for the underwriter.
The underwriter must obtain independent confirmation of the severe hypertension, typically through an Attending Physician's Statement (APS) or a new medical examination.
Independent verification provides the factual, documented medical basis needed to legally and ethically deny the coverage or modify the policy terms.
3
Evaluate the distractors against foundational insurance laws and principles.
Eliminate options that suggest unauthorized unilateral application changes, mischaracterize representations as warranties, or confuse moral hazards with physical hazards.
These distractors violate strict agency law, contract law, and risk management definitions required for licensure.

Key Concept

The Medical Information Bureau (MIB) cannot be used as the sole basis for an adverse underwriting decision; independent medical verification is required.
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Sources of Underwriting Information

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