Field underwriting procedures

C. Explaining Sources of Insurability Information and HIPAA Privacy

1. Attending Physician Report 2. Medical Information and Consumer Reports 3. Medical Exam Report 4. Fair Credit Reporting Act 5. HIPAA Privacy

A. Contract Law

1. Elements of a Contract 2. Insurable Interest 3. Warranties, Representations, and Misrepresentations 4. Unique Aspects of the Insurance Contract

If an underwriter requires extensive information about the applicant's medical history, what report will best serve this purpose?

Attending Physician's Statement (APS)

What is the best way to make a change on an application for insurance?

Start over with a fresh application.

What is the entire contract in health insurance underwriting?

The application and the policy issued.

When should an agent obtain a "Statement of Good Health" from the insured?

When the premium was paid upon policy delivery and not at the time of application.

C. Explaining Sources of Insurability Information and HIPAA Privacy D. Policy Delivery

Although policy delivery may be accomplished without physically delivering it in the policyowner's possession, an agent should personally deliver policies whenever possible. Once the delivery of a policy is made, the free-look period begins.

What entities make up the "Medical Information Bureau" (MIB)?

Insurers

Know This!

Insurers cannot refuse coverage solely on the basis of adverse information on an MIB report.

Quiz Question What is the best way to change an application?

Start over with a fresh application. Most companies require that the app be filled out in ink The agent might make a mistake when filling out the app or the applicant might answer a question incorrectly and want to change it. There are two ways to correct an application. The first and best is to simply start over with a fresh application. If that is not practical, draw a line through the incorrect answer an insert the correct one. The applicant must initial the correct answer.

Whose responsibility is it to inform an applicant for health insurance about the insurer's information gathering practices?

The Agent (A.K.A. The underwriter).

If an agent makes a correction on the application for health insurance, who must initial the correct answer?

The Applicant

In health insurance, the policy itself and the insurance application form what?

The entire contract.

Insured

person covered by the insurance policy; may or may not be the policyowner

B. Completing Application and Obtaining Necessary Signatures

1. Completeness and Accuracy The agent must take special care with the accuracy of the application in the interest of both the company and the insured. Because the application is often the main source of underwriting information, it is the agent's responsibility to make certain that the application is filled out completely, correctly, and to the best of the applicant's knowledge. 2. Signatures Every health insurance application requires the signature of the proposed insured, the policyowner (if different than the insured), and the agent who solicits the insurance. 3. Changes in the Application Because the application is so important, most companies require that it be filled out in ink. The agent might make a mistake when filling out the app or the applicant might answer a question incorrectly and want to change it. There are two ways to correct an application. The first and best is to simply start over with a fresh application. If that is not practical, draw a line through the incorrect answer and insert the correct one. The applicant must initial the correct answer. 4. Premiums with the Application Generally, an initial premium is collected for a health insurance policy and sent to the insurer with the application. A conditional receipt is given to the applicant by the agent. However, the agents cannot bind coverage, so the coverage does not begin until the insurer has approved the application and issued the policy. ‣ No Initial Premium with Application In cases where a premium did not accompany the application for insurance, upon delivery, the agent must collect the premium and obtain a statement of continued good health from the applicant before releasing the policy. 5. Submitting Application to Company for Underwriting The agent is obligated to check the application to make certain that all questions have been answered and all necessary signatures have been collected. The agent then sends the application to the insurer.

Quiz Question If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply?

5 days Consumers must be advised that they have a right to request additional information concerning investigative consumer reports, and the insurer or reporting agency has 5 days to provide the consumer with the additional information.

Field Underwriting Procedures Section 2 Includes:

A. Contract Law. B. Completing Application and Obtaining Necessary Signatures C. Explaining Sources of Insurability Information and HIPAA Privacy D. Policy Delivery E. Explaining Policy and its Provisions, Riders, Exclusions and Ratings F. Replacement G. Chapter Recap

What information are the members of the "Medical Information Bureau" to report?

Adverse medical information about the applicants or insured.

Quiz Question In insurance, an offer is usually made when;

An applicant submits an application to the insurer. In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.

B. Completing Application and Obtaining Necessary Signatures

An application for insurance begins with a form provided by the company and completed by the agent as questions are asked of the applicant, and the applicant's responses are recorded. This form - often called the "app" - is then submitted to the insurance company for its approval or rejection. The application is the applicant's written request to the insurance company to issue a policy or contract based upon the information contained in the application. If the policy is issued, a copy of this application is stapled in the back of the policy and it becomes part of the entire contract. A "notice to the applicant" must be issued to all applicants for health insurance coverage. This notice informs the applicant that a credit report will be ordered concerning his or her past history and any other health insurance for which they have previously applied. The agent must leave this notice with the applicant.

Quiz Question If an insurance company wishes to order a consumer report on an applicant to assist in the underwriting process, and if a notice of insurance information practices has been provided, the report may contain all of the following information EXCEPT the applicant's

Ancestry. The Fair Credit kteporting Act regulates what information may be collected and how the information may be used. Consumer Reports include written and/or oral information regarding a consumer's credit, character, reputation, and habits collected by a reporting agency from employment records, credit reports, and other public sources. Ancestry is not a relevant factor assessed in these reports.

Quiz Question An agent makes a mistake on the application and then corrects his mistake by physically entering the necessary information. Who must then initial that change?

Applicant Any changes made to the application must be initialed by the applicant.

Quiz Question What is the term used for an applicant's written request to an insurer for the company to issue a contract, based on the information provided?

Application An individual can submit an application to an insurer, which requests that the insurer review the information and issue an insurance contract.

Quiz Question In a replacement situation, all of the following must be considered EXCEPT

Assets. In a replacement situation the agent must be careful to compare the benefits, limitations and exclusions found in the current and the proposed replacement policy.

Quiz Question To comply with Fair Credit Reporting Act, when must a producer notify an applicant that a credit report may be requested?

At the time of application A notice to the applicant must be issued to all applicants for health insurance coverage.

Quiz Question What document describes an insured's medical history, including diagnoses and treatments?

Attending Physician's Statement (APS) An APS is the best way for an underwriter to evaluate an insureds medical history. The report includes past diagnoses, treatments, length of recovery time, and prognoses.

Quiz Question When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is

Conditional. The contract is formed on the basis that certain conditions are met.

Quiz Question Which of the following reports will provide the underwriter with the information about an insurance applicant's credit?

Consumer Report Consumer reports include written and/or oral information regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources.

Quiz Question Which of the following is NOT an essential element of an insurance contract?

Counteroffer In order for insurance contracts to be legally binding, they must have four essential elements: agreement (offer and acceptance), consideration, competent parties, and legal purpose. Counteroffer is not required.

Quiz Question Which of the following best describes the aleatory nature of an insurance contract?

Exchange of unequal values An aleatory contract is a contract in which unequal amounts or values are exchanged. The amount of premium the insured pays is much less than the potential loss assumed by the insurer.

C. Explaining Sources of Insurability Information and HIPAA Privacy 1. Attending Physician Report

If the underwriter deems it necessary, an attending physician's statement (APS) will be sent to the applicant's doctor to be completed. This source of information is best for accurate information on the applicant's medical history. The physician can explain exactly what the applicant was treated for, the treatment required, the length of treatment and recovery, and the prognosis.

Field Underwriting Procedures

In this section, you will take a look at the producer's first major role in transacting insurance: completing the application and delivering the policy. You will review the specific steps of the application process, which includes completing the form itself, collecting the premium, and delivering the policy. This section also discusses characteristics and requirements of contracts in general, and some of the unique aspects of health insurance contracts. This section will help you build the foundation of health insurance concepts that are important not only for your licensing exam, but also for your role as an insurance producer.

Quiz Question Who must pay for the cost of a medical examination required in the process of underwriting?

Insurer If an insurer requests a medical examination, the insurer is responsible for the costs of the exam.

Quiz Question Which of the following best describes the MIB?

It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance. The Medical Information Bureau (MIB) is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.

C. Explaining Sources of Insurability Information and HIPAA Privacy 3. Medical Exam Report

Medical examinations, when required by the insurance company, are conducted by physicians or paramedics at the insurance company's expense. Usually such exams are not required with regard to health insurance, thus stressing the importance of the agent in recording medical information on the application. The medical exam requirement is more common with life insurance underwriting. If an insurer requests a medical examination, the insurer is responsible for the costs of the exam. If an insurer requires an applicant to take an HIV test, the insurer must first obtain the applicant's written consent for the test. The consent form must explain the purpose of the test, and inform the applicant about the confidentiality of the results, and procedures for notifying the applicant about the results. Underwriting for HIV or AIDS is permitted as long as it is not unfairly discriminatory. An adverse underwriting decision is not permitted if based solely upon the presence of symptoms, but only if HIV is confirmed in relation to the symptoms. Insurance companies must maintain strict confidentiality regarding HIV-related test results or diagnoses.

If an insurer decides to obtain medical information from different sources in order to determine the insurability of an applicant, who must be notified of the investigation?

The Applicant

What is the term used for a written request for an insurer to issue an insurance contract based on the provided information?

The Application

Medical Information Bureau (MIB)

The MIB is a membership corporation owned by member insurance companies. It is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals. It is a systematic method for companies to compare the information they have collected on a potential insured with information other insurers may have discovered. The MIB can be used only as an aid in helping insurers know what areas of impairment they might need to investigate further. An applicant cannot be refused simply because of some adverse information discovered through the MIB.

Quiz Question Whose responsibility is it to determine if all of the questions on an application have been answered?

The agent It is the responsibility of the agent to make sure that the application has been properly signed and that all questions have been answered correctly.

E. Explaining Policy and its Provisions, Riders, Exclusions, and Ratings

The agent has a responsibility to provide the insured with an explanation of the policy's main benefits and provisions. If the policy is issued with any changes or amendments, the agent is required to explain these changes and obtain the insured's signature acknowledging receipt of these amendments.

Who is responsible for paying the cost of a medical examination required in the process of underwriting?

The insurer

Offer and Acceptance

There must be a definite offer by one party, and the other party must accept this offer in its exact terms. In insurance, the applicant usually makes the offer when submitting the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.

C. Explaining Sources of Insurability Information and HIPAA Privacy 5. HIPAA Privacy

Under the Privacy Rule for HIPAA (Health Insurance Portability and Accountability Act), protected information includes all "individually identifiable health information" held or transmitted by a covered entity or its business associate, in any form or media, whether electronic, paper or oral. This is called protected health information (PHI). Individually identifiable health information including demographic data that relates to past, present or future physical or mental health or condition, or payment information that could easily identify the individual. A covered entity must obtain the individual's written authorization to disclose information that is not for treatment, payment, or health care operations.

Insurance policy

a contract between a policyowner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events

Agent/Producer

a legal representative of an insurance company; the classification of producerusually includes agents and brokers; agents are the agents of the insurer

Applicant or proposed insured

a person applying for insurance

Premium

the money paid to the insurance company for the insurance policy

Policyowner

the person entitled to exercise the rights and privileges in the policy

Insurable interest

the policyowner facing the possibility of losing something of value in the event of loss

Quiz Question Within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained?

3 days Investigative consumer reports cannot be made unless the consumer is advised in writing about the report within 3 days of the date the report was requested.

Quiz Question The proposed insured makes the premium payment on a new insurance policy. If the insured should die, the insurer will pay the death benefit to the beneficiary if the policy is approved. This is an example of what kind of contract?

Conditional A conditional contract requires both the insurer and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies which put the burden of condition on either the insurer or the policyowner.

A. Contract Law 4. Unique Aspects of the Insurance Contract

Conditional • As the name implies, a conditional contract requires that certain conditions must be met by the policyowner and the company in order for the contract to be executed, and before each party fulfills its obligations. For example, the insured must pay the premium and provide proof of loss in order for the insurer to cover a claim, Unilateral • In a unilateral contract, only one of the parties to the contract is legally bound to do anything. The insured makes no legally binding promises. However, an insurer is legally bound to pay losses covered by a policy in force. Adhesion • A contract of adhesion is prepared by one of the parties (insurer) and accepted or rejected by the other party (insured). Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. In other words, insurance contracts are offered on a take-it-or-leave-it basis by an insurer. Any ambiguities in the contract will be settled in favor of the insured. Aleatory • Insurance contracts are aleatory, which means there is an exchange of unequal amounts or values. The premium paid by the insured is small in relation to the amount that will be paid by the insurer in the event of loss. ‣ Life and Health Example: John purchases a life insurance policy for $100,000. His monthly premium is $100. If John only had the policy for 2 months, which means he only paid $200 in premiums, and he unexpectedly died, his beneficiary will receive $100,000. A $200 contribution on the part of the insured in exchange for $100,000 benefit from the insurer illustrates an aleatory contract. ‣ Property and Casualty Example: John purchases a homeowners insurance policy for $100,000. His monthly premium is $100. If John only had the policy for 2 months, which means he only paid $200 in premiums, and the home was unexpectedly destroyed by a covered peril, John will receive $100,000. A $200 contribution on the part of the insured in exchange for $100,000 benefit from the insurer illustrates an aleatory contract.

C. Explaining Sources of Insurability Information and HIPAA Privacy 2. Medical Information and Consumer Reports

For policies with higher amounts of coverage or if the application raised additional questions concerning the prospective insured's health, the underwriter may require a medical examination of the insured. There are two options, depending on the reason for the medical examination: 1. The insurer may only request a paramedical report which is completed by a paramedic or a registered nurse; and 2. The underwriter may require an Attending Physician's Statement (APS) from a medical practitioner who treated the applicant for a prior medical problem. In addition to an attending physician's report, the underwriter will usually request a Medical Information Bureau (MIB) report.

A. Contract Law 1. Elements of a Contract

In order for insurance contracts to be legally binding, they must have 4 essential elements: 1. Agreement - offer and acceptance; There must be a definite offer by one party, and the other party must accept this offer in its exact terms. In insurance, the applicant usually makes the offer when submitting the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy. 2. Consideration; The binding force in any contract is the consideration. Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application. The consideration on the part of the insurer is the promise to pay in the event of loss, 3. Competent parties; and The parties to a contract must be capable of entering into a contract in the eyes of the law. Generally, this requires that both parties be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol. 4. Legal purpose. The purpose of the contract must be legal and not against public policy. To ensure legal purpose of a Life Insurance policy, for example, it must have both: insurable interest and consent. A contract without a legal purpose is considered void, and cannot be enforced by any party.

C. Explaining Sources of Insurability Information and HIPAA Privacy

In order to determine insurability of the applicant, the insurer may use several sources, such as a Medical Information Bureau (MIB) report, for gathering underwriting information. The applicant must be advised of the sources to be used and how the information is gathered. All sources used to verify insurability must adhere to the Fair Credit Reporting Act.

A. Contract Law 2. Insurable Interest

Insurable interest is proven by love and affection, economic or financial loss. In life and health insurance, it is required at the time of policy issuance.

Quiz Question Who makes up the "Medical Information Bureau" (MIB)?

Insurers The MIB is made up of insurers so the companies can compare the information they have collected on a potential insured with information other insurers may have discovered.

Quiz Question An insured stated on her application for life insurance that she had never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following will explain the reason a death benefit claim is denied?

Material misrepresentation A material misrepresentation will affect whether or not a policy is issued. If the insured had been truthful, it is very likely that the policy would not be issued.

Medical Exam Report

Medical examinations, when required by the insurance company, are conducted by physicians or paramedics at the insurance company's expense. Usually such exams are not required with regard to health insurance, thus stressing the importance of the agent in recording medical information on the application. The medical exam requirement is more common with life insurance underwriting. If an insurer requests a medical examination, the insurer is responsible for the costs of the exam. If an insurer requires an applicant to take an HIV test, the insurer must first obtain the applicant's written consent for the test. The consent form must explain the purpose of the test, and inform the applicant about the confidentiality of the results, and procedures for notifying the applicant about the results. Underwriting for HIV or AIDS is permitted as long as it is not unfairly discriminatory. An adverse underwriting decision is not symptoms. Insurance companies must maintain strict confidentiality regarding HIV-related test results or permitted if based solely upon the presence of symptoms, but only if HIV is confirmed in relation to the diagnoses.

Quiz Question The Federal Fair Credit Reporting Act

Regulates consumer reports. The Federal Fair Credit Reporting Act regulates consumer reports, also known as consumer investigative reports, or credit reports.

C. Explaining Sources of Insurability Information and HIPAA Privacy 4. Fair Credit Reporting Act

The Fair Credit Reporting Act established procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate, relevant, and properly used. The law also protects consumers against the circulation of inaccurate or obsolete personal or financial information. The acceptability of a risk is determined by checking the individual risk against many factors directly related to the risk's potential for loss. Besides these factors, an underwriter will sometimes request additional information about a particular risk from an outside source. These reports generally fall into 2 categories: • Consumer Reports and Investigative Consumer Reports. Both reports can only be used by someone with a legitimate business purpose, including insurance underwriting, employment screening, and credit transactions. ‣ Consumer Reports Consumer reports include written and/or oral information regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources. ‣ Investigative Consumer Reports Investigative Consumer Reports are similar to consumer reports in that they also provide information on the consumer's character, reputation, and habits. The primary difference is that the information is obtained through an investigation and interviews with associates, friends and neighbors of the consumer. Unlike consumer reports, these reports cannot be made unless the consumer is advised in writing about the report within 3 days of the date the report was requested. The consumers must be advised that they have a right to request additional information concerning the report, and the insurer or reporting agency has 5 days to provide the consumer with the additional information.

Who must sign a health insurance application?

The policyowner, The insured (if the insured is a different person), and the agent

C. Explaining Sources of Insurability Information and HIPAA Privacy F. Replacement

When an agent attempts to replace the insured's current health insurance policy with a new one, the agent needs to be careful not to mislead the insured or provide coverage that is to the insured's detriment. It is the agent's responsibility to carefully compare the benefits, limitations and exclusions found in the current and the proposed replacement policy. The agent also must make sure that the current policy is not cancelled before the new policy is issued. Underwriting is important when replacement is involved. It is an underwriter's duty to evaluate risk and decide whether or not a person is eligible for coverage. The insured may be under the assumption that a replacing policy is in his/her best interests, but after being evaluated by an underwriter, where premium and risk are exchanged, an insured may not be paying the same premium or receiving the same benefits. Example: When Robert applies for health insurance at age 25, as a nonsmoker without health problems, he should have a different premium than if he applied for a replacing policy at age 45, after suffering a heart-attack, and having smoked for 15 years. Let's assume that at the age of 25 Robert paid an excessively high policy premium because he was issued an overpriced policy. What happens at age 45?Robert is evaluated, with age and health taken into account (along with other factors), and the premiums are higher due to these factors. Even though Robert was told he was paying excessive premiums on his original policy, if a new policy is written, he will be judged on the factors that affect his policy at that time, not at the time original policy was written. Pre-existing conditions are a very important consideration when replacing a policy. A pre-existing condition is a medical condition for which the insured sought medical advice or treatment within a specified period of time prior to the policy issue. Health conditions covered under the current policy may not be covered under the new policy because of pre-existing condition limitations, or new waiting periods may be required in a new policy. While the Affordable Care Act eliminated pre-existing conditions for individual and group accident and health insurance policies, they may still apply to Medicare, long-term care, and disability income coverages.

Quiz Question In forming an insurance contract, when does acceptance usually occur?

When an insurer's underwriter approves coverage. In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.

Consent

permission to do something

Insurer (principal)

the company who issues an insurance policy

3. Warranties, Representations, and Misrepresentations

• A warranty is an absolutely true statement upon which the validity of the insurance policy depends. Breach of warranties can be considered grounds for voiding the policy or a return of premium. Because of such a strict definition, statements made by applicants for life and health insurance policies, for example, are usually not considered warranties, except in cases of fraud. • Representations are statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true. For insurance purposes, representations are the answers the insured gives to the questions on the insurance application. • Untrue statements on the application are considered misrepresentations and could void the contract. A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company. Furthermore, if material misrepresentations are intentional, they are considered fraud.