Sources of Insurability Information

Instructor: Deborah Schell

Deborah teaches college Accounting and has a master's degree in Educational Technology.

When you apply for insurance, you are asked to provide information and the insurer will collect more. In this lesson, you will learn about sources of insurability information.

What Are Sources of Insurability Information?

Let's meet Sam who is applying for insurance. His employer gave him the application form, but he would like to know more about where the insurance company will gather information about him in order to make its decision about approving or denying his application. Let's see if we can help Sam with this problem.

When Sam applies for insurance, he will have to answer many questions relating to his health, his hobbies, and his age. The insurance company will gather additional sources of insurability information in order to confirm the information contained in his application and for more information about Sam that he may not have disclosed in his application. The insurance company uses this insurability information to approve or deny Sam's application.

In addition to Sam's application, the insurance company could gather insurability information from the following insurability sources:

  • Medical Information Bureau (MIB)
  • Consumer reports

Insurance companies gather a great deal of information on an applicant and they have to protect this information from unauthorized access and ensure its accuracy. In particular, companies have to follow:

  • The Health Insurance Portability and Accountability Act (HIPAA), and
  • The Fair Credit Reporting Act

Let's examine each of these sources of information as well as the regulations to protect them in more detail.

Medical Information Bureau (MIB)

The Medical Information Bureau is an organization of life insurance companies that exchange information about individuals who have applied for life insurance. Before it can make a request to the MIB, Sam must provide his written approval to the insurance company.

Let's assume Sam completes his application and authorizes his insurance company to consult the Medical Information Bureau. The insurance company will make a request to the MIB and it will provide the insurance company with any information it has about Sam.

For example, if Sam applied to another insurance company and was unsuccessful in obtaining coverage, the MIB information would disclose it. If Sam made a claim to another insurance company, this information would also appear on Sam's report.

Consumer Reports

An insurance applicant contains a number of questions that helps the insurance company determine the potential risk associated with offering insurance to the applicant. To corroborate the information contained in the application, insurance companies often use consumer reports where information is obtained from family and friends. The purpose of the consumer report is to obtain additional information on your lifestyle, reputation, and character.

Let's assume Sam indicated on his application that he never participated in skydiving, but a consumer report suggests that he is a member of a local skydiving club. The insurance company would deem this activity as risky and may decide to deny his application or it could charge him a higher premium as he represents a higher risk to the company.

Health Insurance Portability and Accountability Act (HIPAA)

The Health Insurance Portability and Accountability Act is a federal law that the government put in place to protect health information and an individual's medical records. An insurance company must protect the health information of an individual if that information identifies the individual. For example, when Sam applies for insurance, the insurance company must ensure that the health information contained in his file stays safe and is not shared with anyone outside of the organization without Sam's knowledge and approval.

Fair Credit Reporting Act

The Fair Credit Reporting Act is a federal act which ensures that information with the consumer reporting agencies is fair, accurate, and kept private. An individual has a number of rights under this act such as:

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