Underwriting Flashcards
List 7 Sources of Underwriting Information
Underwriters rely on many sources of information in deciding whether to accept, decline, or rate a risk, including:
- the application
- the agent’s report (producers report)
- an attending physician’s statement (APS)
- an inspection, credit, or consumer report
- Medical Information Bureau (MIB) report a medical exam (including an electrocardiogram, or EKG; treadmill test; or other examination by a physician)
- Department of Motor Vehicle (DMV) report
- Hazardous activity questionnaires (concerning activities related to aviation; SCUBA diving; racing of autos)
Describe the Agent/Producer Report contents?
The producer might include information about the applicant’s:
- personal character
- habits
- other insurance policies held
If the new policy being applied for is to replace an existing policy, then the producer must provide information about any prior policy.
When is an Attending Physician Statement requested?
After reviewing the application and agent’s report, the underwriter may feel that more information is needed. For example, the underwriter might want to know more about a past health issue mentioned on the application.
In this case, a request for an Attending Physician’s Statement (APS) might be made.
Investigative Consumer Report (Inspection Report)
The underwriter may want to view more personal information about the applicant’s lifestyle and/or finances. Most typically done with applicants seeking very high amounts of life insurance.
- Public records such as motor vehicle reports, bankruptcies, judgments, and criminal records are all available for inspection.
- Inspection reports are obtained by qualified inspectors questioning friends, neighbors, co-workers, and others known to the applicant.
- Credit reports are commonly used when the applicant’s finances are a concern. Produced by credit reporting agencies (CRAs), a credit report assesses a consumer’s credit worthiness.
Fair Credit Reporting Act
Must comply with the Fair Credit Reporting Act (FCRA). The FCRA sets procedures that credit reporting agencies must follow to ensure confidentiality, accuracy of reporting, and proper use of the information.
The FCRA also requires businesses (including insurers) that seek a credit report to notify the applicant about the request, usually within 3 days.
The requestor must
- disclose to the applicant what the report will cover
- notify the applicant that they may request a summary of what the requestor learned in the credit report.
- provide summary within 5 business days of the request
If an insurance company makes an adverse underwriting decision based on information obtained in a credit report, it is obligated by the FCRA to notify the applicant of that fact.
It is not required to provide the applicant with a copy of the credit report but is required to report the
- name
- address
- telephone number of the CRA that produced report.
The applicant can request the contents of the report directly from the CRA (not the insurance company) and may contest any inaccurate information contained in the report.
What does MIB stand for?
List 3 key facts.
List 2 mandatory rules.
Another source of underwriting information is the MIB Group, Inc. (MIB). Formerly called the Medical Information Bureau, the MIB is
- a cooperative data exchange
- formed by North American insurance life and health insurance companies.
- to facilitate underwriting and reduce adverse selection by identifying applicants who might have previously applied for a policy.
An insurer cannot decline or rate an application based solely on the contents of the MIB report.
Applicants must grant approval for insurers to access and use MIB information pertaining to them.
The need for Medical Exams and Lab Tests is determined by what 3 factors?
The need for a medical exam or lab test is typically determined by
- the type or amount of the proposed insurance;
- the age of the applicant; or
- the health of the applicant.
While a medical exam is always conducted by a qualified professional person, that person does not have to be a doctor. It can also be done by a registered nurse or paramedic.
Insurance companies pay for medical exams or lab tests that they request.
What act became law and governs how insurance companies can use HIV + Genetic Testing?
Insurers are permitted to test for the presence of the human immunodeficiency virus (HIV).
The Genetic Information Nondiscrimination Act (GINA), which became law in 2008, prohibits U.S. insurance companies and employers from discriminating on the basis of information derived through genetic test, regardless of the source of the test data.
Privacy and the Gramm-Leach-Bliley Act
The Gramm-Leach-Bliley (GLB) Act of 1999 bars a financial institution from disclosing a consumer’s nonpublic personal information to an unaffiliated 3rd party (unless it provides consumers with notice and the ability to opt out).
It requires that financial institutions provide customers with a privacy notice at the start of the customer relationship and annually thereafter.
Also, GLB Act requires that each federal regulatory agency establish standards by which the financial institutions implement administrative, technical, and physical safeguards.
Selection Criteria should be based on ___________
Unfair Discrimination should never occur when determining what 5 factors?
Insurers are expected to establish their selection criteria based on statistical data.
State laws prohibit discrimination against any individual on the basis of race, creed, religion, gender, sexual orientation, or physical defects (including blindness) when
- determining eligibility,
- setting coverage limits,
- setting deductibles,
- identifying exclusions, or
- settling claims.
List the 3 Risk Classifications.
What percent of applications recieve a standard or preferred rate?
Applicants are classified by the risk they represent to the insurer. Every applicant is ultimately assigned a risk classification that determines if they are
- accepted at standard (or even preferred) premium rates;
- assigned to one of the various substandard rating classifications; or
- rejected
To be as fair as possible to all applicants, an underwriter’s decision to decline an applicant or to apply a substandard rating is reviewed by another underwriter.
More than 90 percent of applications for life insurance historically receive standard or preferred issue.
2 characteristics of a Standard Risk Classification
- An applicant with a standard risk rating is one who meets the insurer’s guidelines as an acceptable risk.
- Applicants rated as a standard risk pay standard premium rates.
What 4 characteristics factor into receiving a Preferred Risk Classification?
How does this classification impact premiums?
An applicant who presents a very low risk of loss to the insurer is classified as a preferred risk.
A person typically qualifies as a preferred risk if he or she
- enjoys excellent health—e.g., the applicant’s cholesterol levels, blood pressure, and weight are well within acceptable limits;
- has no risky habits—e.g., the applicant does not smoke, drink, or engage in dangerous hobbies;
- works in a low-risk job; and
- has no family history of heart disease or cancer at an early age.
Applicants with a preferred risk rating usually pay lower-than-standard premiums.
List 4 factors that can contribute to receiving a Substandard Risk Classification.
An applicant who presents a high risk of loss to the insurer is classified as a substandard risk.
An applicant can receive this rating for a number of reasons, including:
- poor health
- bad habits
- a dangerous job or
- a high number of early major illnesses in the family.
Applicants with a substandard risk rating pay higher premiums for the amount of coverage issued.
What percent of applications get an Uninsurable (Declined) Risk Classification?
Applicants with a very high substandard risk rating are declined coverage altogether.
Only 2% of life insurance applicants are rejected as uninsurable.
