Individual Underwriting by the Insurer/Information Sources and Regulation

This is called an Attending Physician's Statement (APS). The insurance company must pay for this information, but it is often less expensive than ordering an examination.

The next step would be a paramedical exam (which often includes blood work and a urine sample). A paramedical exam is conducted by a registered nurse or a paramedic. Under certain circumstances the underwriter may require a full medical examination by a licensed physician for additional information. All these are at the insurer's expense.

A full medical exam occurs routinely for applicants requesting higher amounts of coverage, or if the application raised additional questions concerning the health of the prospective insured, or for applicants beyond a certain age. Each company establishes standard requirements, based on age and amount of coverage, and reserves the right to request additional information and testing, at their own expense.

No insurer, representative or support organization may request an investigative consumer report in connection with an insurance application, policy renewal, reinstatement or a change in benefits – unless the affected individual is informed

• That each individual may request to be interviewed in connection with the report; and
• That, upon request, this individual is entitled to receive a copy of the report.

If an investigative consumer report is prepared by a support organization, the responsible entity must inform the organization of any request for a personal interview.

No investigative consumer report is permitted to contain any information related to the affected individual’s sexual orientation. Furthermore, these reports cannot divulge information related to counseling for AIDS.

In addition to a paramedical report and an attending physician's report, the underwriter will usually request a Medical Information Bureau (MIB) report.

The MIB is a membership corporation owned by hundreds of member insurance companies. In other words, insurers are members of the MIB. 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 is to be used only as an aid in helping insurers know what areas of impairment they might need to investigate further. A client cannot be refused simply because of some adverse information discovered through the MIB.

The insurer can only use the information obtained through the MIB to conduct further investigation as to the applicant’s current insurability.

Recently, insurers have implemented HIV testing to determine if an insurance applicant has Acquired Immunodeficiency Syndrome (AIDS). It is common among insurers to require an HIV test when an applicant is applying for a large amount of coverage (usually $50,000 or more). State regulations have set forth the following rules and guidelines for insurers when requiring an applicant to submit to an HIV test:

• The insurer must reveal the use of testing to the applicant and obtain written consent from the applicant;
• The test must be administered in a manner that meets the protocol of the U.S. Department of Health and Human Services;
• The insurer must disclose the test results as authorized by the applicant in writing;

• If the applicant has not identified a physician to receive test results, the positive test results and the identity of the applicant must be sent to the state Department of Health;
• The reporting of test results must include the name and address of the reporting company.

Information the companies obtain relating to risk factors aid the underwriters in determining the extent of the risks involved. The company will discriminate in favor of good risks and not of poor risks. However, insurance companies cannot unfairly discriminate between individuals of the same class and equal life expectancy in the rates, benefits, or any terms and conditions of the contact.

In classifying a risk, the Home Office underwriting department will look at the applicant’s past medical history, present physical condition, occupation, habits and morals. If the applicant is acceptable, the underwriter must then determine the risk or rating classification to be used in deciding whether or not the applicant should pay a higher or lower premium. A prospective insured may be rated as one of the three classifications: Standard, Substandard, or Preferred.

Preferred Risks are those individuals who meet certain requirements and qualify for lower premiums than the standard risk. These applicants have a superior physical condition, lifestyle, and habits.

Standard risks are persons who, according to a company’s underwriting standards, are entitled to insurance protection without extra rating or special restrictions. Standard risks are representative of the majority of people at their age and with similar lifestyles. They are the average risk.

Substandard (High Exposure) Risk applicants are not acceptable at standard rates because of physical condition, personal or family history of disease, occupation, or dangerous habits. These policies are also referred to as "rated" because they could be issued with the premium rated-up, resulting in a higher premium.

Applicants who are rejected are considered declined risks. Risks that the underwriters assess as not insurable are declined. For example, a risk might be as follows:

• Where there is no insurable interest.
• Where the potential for loss is so great it does not meet the definition of insurance.
• Where insurance is prohibited by public policy or is illegal.