Unit 2: Life/Health Insurance Underwriting

What is the Medical Information Bureau (MIB)?

Non-profit insurance trade association that maintains underwriting information on applicants. When a member company finds unfavorable information about an applicant during the underwriting process they report their discovery to the MIB using codes signifying certain conditions. Other member companies can go to the MIB and access this information, were the applicant to go to a different insurance company. MIB contains the following information: * medical history * hazardous jobs or hobbies * poor driving records

What are considered Selection Criteria?

Gender Age Risk exposure

What is the Policy Review part of the delivery process?

In order to make sure the policyowner understands the policy, the agent will review the policy, riders, exclusions, and other details.

What is "Collecting the Premium?"

"Don't forget to collect the money!" "No money, No coverage!" "Offer to buy" insurance exists when the first premium is submitted with the application.

What are STOLI/IOLI?

(STOLI) Stranger-Owned Life Insurance (IOLI) Investor-Owned Life Insurance These are life insurance arrangements that involve investors who convince seniors to take out a new life insurance policy with the investors named as beneficiaries. Seniors generally receive some kind of compensation for this arrangement: an upfront payment, a loan or small continuing interest in the policy death benefit. Being banned in most states because the investor as the beneficiary does not have insurable interest in the insured. They are fraudulently targeting Seniors.

What are the 2 types of "Receipts?"

- Conditional receipt: gives temporary coverage during the underwriting process. - Binding receipt: Not common in life insurance.

What are the 4 classifications of risk that applicants are sorted/grouped into as determined by underwriting guidelines?

- Standard: (Normal range) average health; normal life expectancy; these risks are insured for "standard rates." - Preferred: (Great shape = Excellent health) risk of loss is BELOW average; favorable to the company; may be insured at "preferred" or discounted rates; favorable risk factors include: * healthy lifestyle * clean medical history * low-risk occupation - Substandard: (Below average range) represent below average life expectancy = high risk life insurance; risk of loss is ABOVE average; unfavorable to the company; only accepted by charging higher rates; AKA "rated up" or "rated;" *methods of charging a higher rate for substandard risks are: *adding a flat additional charge, *charging applicants the standard premium for a higher attained age, or *reducing the benefits - Declined: the underwriting guidelines indicate the applicant is not insurable at any price, therefore the applicant is declined.

What is the Fair Credit Reporting Act (FCRA)?

1. The federal FCRA requires third party information to be kept confidential, accurate, relevant, and used properly. 2. Notice must be issued to all applicants that a credit report was ordered. 3. Consumers have rights and can dispute any information in their files. 4. Violators of the FCRA may be subject to fines and imprisonment, and may have to pay actual damages suffered by the consumer. The maximum penalty for obtaining credit reports under false pretenses is $5,000, imprisonment for 1 year, or both.

What happens when there are "Other Errors and Omissions Situations?"

Agents are liable for their mistakes. They should take special care to follow procedures when: *taking applications *explaining coverages (they should know their stuff) * collecting premiums *amending policies *submitting claims

What is "Accuracy?"

Agents must be conscientious about getting and recording the correct answer to every question on the application.

What are Investigative Consumer Reports?

Also called "Inspector Reports;" this is information obtained by interviewing people who know the applicant personally, such as friends, neighbors, associates.

What are the Sources of Information for the Underwriting Process?

Application * General Information * Health Information Attending Physician's Statement Medical Examinations and Testing * AIDS Considerations * HIPAA Disclosures Medical Information Bureau (MIB) Consumer Reports Investigative Consumer Reports

What is the "Disclosure Notification?"

As part of the "Information Practices," State Law requires that applicants be given advance written notice stating who is authorized to disclose, the kind of information being disclosed, and the reason that the information is being collected. The signing of the disclosure gives the insurer consent to gather and disseminate the information.

What are the Anti-Money Laundering Provisions of the USA Patriot Act?

As part of the Patriot Act, the Anti-Money Laundering Provisions establish measures to prevent, detect, and prosecute international money laundering and financing terrorism. Any company that issues life insurance, annuities, or other products with a cash value or investment features must have procedures and controls for recognizing and reporting suspicious money laundering activities. The Anti-Money Laundering Program must be headed by a compliance officer, include ongoing training of individuals in the company, and tested for its effectiveness. The types of suspicious activity include: *receipt of any cash payment in excess of $10,000 * purchase of insurance that is not consistent with the customer's needs * requests to have refund or surrender proceeds or other benefits paid to a party not related to the purchaser *greater interest in the early termination features and not the potential performance * fake identification/reluctance to provide identification *maximum borrowing against a product's value too soon after the purchase.

What are the approaches the agent must apply toward the completion of the application?

Confidentiality, Accuracy/Changes, Completeness, Backdating

What is included in the Medical Examinations and Testing?

Depending on the death benefit amount, the proposed insured may be required to take a medical exam (larger death benefit amounts, medical exams are required); the death benefit amount is determined by the type of exam/testing required by the insurer. NOTE: the insurer pays for the medical exams and testing required during the underwriting process. Sexual orientation cannot be used in the underwriting process, however the agent is allowed to ask the proposed insured about being diagnosed with HIV-AIDS/ARC HIPAA Disclosures (Health Insurance Portability and Accountability Act): requirements on the disclosure of the insured's health information by medical providers, insurers, and agents. All proposed insured's health information must remain confidential. In the event that any information has to be shared the applicant must be given full notice of: * insurer's information-sharing practices * their right to maintain privacy * an opportunity to refuse to have their information released

What is "Conditional Receipt?"

Gives temporary coverage during the underwriting process; if proposed insured dies during the underwriting process the application process continues - one of the following will occur: * insured meets company requirements and the claim is paid out, * insured does not meet requirements and is determined "uninsurable" and coverage is denied; the premium is refunded.

What is the Statement of Good Health part of the delivery process?

If the premium was not paid at the time of application, the agent must collect the first premium payment. Then, the policyowner must sign a Statement of Good Health, attesting to no changes in their health since they originally applied.

What about "Changes in the Application?"

If a correction has to be made on an application, the applicant must certify that the error occurred and place their initials next to the correction.

What is "Backdating?"

It is when the insurer allows the agent to "backdate" the application so the premium can be based on an applicant's age and lower the cost of the premium. Backdating is only allowed up to 6 months.

What is "Underwriting?"

It is the evaluation of risk to determine if it is acceptable. The agent completes the application for insurance and sends it off to underwriting. The agent is known as the "field underwriter."

What is Employee Retirement Income Security Act (ERISA)?

It was enacted to protect the interests of employee benefit plans and the interests of the employee beneficiaries, mostly having to do with qualified pension plans. Reporting and disclosure information for plan participants. Pension plans are funded by the company.

What is "Confidentiality?"

Keeping highly personal information about an applicant that is acquired during the application process private; completed applications must be kept out of the sight of others; personal information of applicants should never be the subject of idle talk.

What is "Completeness?"

Make sure the application is COMPLETELY filled out; an incomplete application may cause a delay in underwriting because they had to return it to the agent for completion. NOTE: if a policy is issued and the application wasn't completed, the underwriter/company waives its rights to that information. Therefore, if a claim arises, the company cannot deny it based on the fact there was missing information from the application.

What is included on the Application?

Part 1 - General Information Part 2 - Health Information Part 3 - Producer's Report

What is the "Producer's Report?"

Part III of the life insurance application, the producers/agents report is the producer's or agent's statement. This is the place where the producer/agent is able to disclose any knowledge or beliefs about the financial status, habits, and/or character of the proposed insured. It is not attached to the policy. Example: A lady who is answering an agent's questions about being a smoker (has a lit cigarette in her hand, an ash tray in front of her, and a pack of cigarettes in her pocket) and tells the agent that she is a non-smoker. The agent MUST check the box for Non-Smoker. However, after he/she leaves the application interview, the agent will pull out a producer's report form and write down what he saw and believes to be true about the proposed insured.

What is the Delivering and Servicing the Policy process (during the delivery appointment)?

Personal Delivery Policy review Statement of good health Effective date and coverage

What are considered Unfair Discrimination?

Race Religion National origin Place of residence *People who are blind (per state) *Victims of domestic violence (per state)

What are the required signatures?

The Application: several documents must be signed to complete the application process by: - proposed insured (if the applicant is not the insured) - company officer (corporation owned document) - parent/legal guardian (juvenile policy for the minor)

What is the Effective Date of Coverage part of the delivery process?

The Effective Date of Coverage is the day premium is paid OR when the medical exam is given. Example: if an applicant submits their first premium payment with their application, the effective date of coverage is the application date. However, if the medical examination determines the applicant to be a substandard risk, the policy that was issued will require higher premiums. Since the application was forwarded to underwriting with the standard premiums the applicant has 2 choices: * applicant may deny the substandard policy and does not pay additional premium, coverage was never in effect; * applicant accepts the substandard policy and pays the additional premium, the effective date of coverage is the original date the policy was issued. NOTE: if application was sent without the premium payment, but was paid upon delivery, the effective date was the date the policy was issued (date of the medical examination).

What are "Information Practices?"

The agent must comply with the requirements for telling the applicant that any and all personal information collected during the application process is private and how it will be used.

What is the Personal Delivery part of the process?

The policy must be delivered to the policyowner. Agents must get a delivery receipt from the policyowner acknowledging that the policy was delivered and the date.

What is included on the Attending Physician's Report (APS)?

The underwriter may ask the proposed insured's doctor for a statement to find out about current conditions and medical history. The underwriter may also ask for a copy of the proposed insured's medical records.

What are "Actuaries?"

They apply the Law of Large Numbers which protects insurance companies from adverse selection.

What are Consumer Reports?

They are used to determine a consumer's eligibility for credit (credit report), insurance, or employment. Underwriters use an applicant's credit report to determine if they are reliable to pay their bills on time.

What is the purpose of the MIB

To reduce the instances of misrepresentations and fraud. Insurers may not reject an applicant solely on the basis of the information found on the MIB, but it indicates "red flags" for further investigation.

What are "Receipts?"

When the first premium is received at the time of application, the agent must give the applicant a receipt. The effective date of coverage will depend on the type of receipt issued. There are 2 types of Receipts.