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Difficulty: MediumSources of Underwriting Information

An underwriter is reviewing a high-value life insurance application. Due to inconsistencies regarding the applicant's stated income and occupation, the underwriter orders an Investigative Consumer Report to verify the applicant's character, general reputation, and lifestyle.

Based on the regulations governing sources of underwriting information, which of the following statements is true regarding this process?

  1. A
    The underwriter is legally authorized to unilaterally correct the financial section of the original application to align with the validated findings of the report.
  2. The applicant must be provided with a written disclosure, typically within 3 days of the request, stating that an investigative report is being compiled.Answer
  3. C
    If the report results in a declined policy, the insurer is exempt from sending an FCRA adverse action notice because the decision was based on lifestyle rather than medical history.
  4. D
    Any inconsistencies discovered by the investigator automatically convert the applicant's initial statements into breached warranties, immediately voiding the application.

Answer

The applicant must be provided with a written disclosure, typically within 3 days of the request, stating that an investigative report is being compiled.
The correct answer identifies that under the Fair Credit Reporting Act (FCRA), ordering an Investigative Consumer Report requires strict consumer notification. The insurer must provide a written disclosure to the applicant within 3 days of requesting the report, explaining that information regarding their character and lifestyle is being gathered.

Step-by-Step Solution

1
Identify the type of underwriting source being used.
The scenario involves an Investigative Consumer Report, which relies on interviews with associates, friends, and neighbors to assess lifestyle and character.
Different underwriting sources trigger different regulatory requirements under federal law.
2
Apply the relevant federal regulation (FCRA) to the identified source.
The Fair Credit Reporting Act strictly regulates Investigative Consumer Reports and mandates that consumers be informed when one is ordered.
To protect consumer privacy and ensure transparency, the law requires a written disclosure to be sent to the applicant within 3 days of the report being requested.

Key Concept

Investigative Consumer Reports and FCRA Compliance
Estimated Time:1m 30s
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Topics

Sources of Underwriting Information

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