RESCINDED – The Repercussions of Non-Disclosure
About ten months ago, I wrote a ONE IDEA article titled “Underwriting & The Economic Impact of Non-Disclosure.” That piece examined the rise of Accelerated Underwriting Programs and the resulting shift in responsibility toward clients, who now provide information directly to carriers during telephone interviews or through electronic, non-medical Part B online forms.
While these programs can increase efficiency and reduce turnaround time, they do not absolve advisors of their duty to ensure that a client’s signature on any delivery requirement accurately reflects the truthfulness and completeness of the case.
HEALTH STATEMENT ON DELIVERY:
Nearly every policy issued today comes with a HEALTH STATEMENT on the DELIVERY RECEIPT for the policy. Every advisor must carefully read this legal document. It is an attestation that the client has NOT been back to any doctor or had any CHANGES IN HEALTH since answering the questions on the paramed exam or Part 2 of the application.
PLEASE NOTE:
A routine medical check-up conducted after the exam or Part B signature date is regarded as a change in health status – even if no adverse findings are identified. Additionally, some carriers include language in their delivery receipts requiring disclosure of any upcoming or planned medical procedures.
ELECTRONIC DETECTIVES:
Whether intentional or not, when clients fail to disclose a change in health and simply sign the delivery receipt, today’s electronic systems can detect such omissions through “trailing” code checks. Home office systems already access medical claims data and MIB activity as part of the standard underwriting process.
These same systems can automatically re-check medical codes after three or six months, potentially revealing undisclosed conditions on the original application or delivery receipt. When discrepancies are detected, a prompt investigation – including a review and update of medical records or electronic health record (EHR) summaries – can reveal attempted fraud.
The immediate remedy in such cases is rescission of the policy due to non-disclosure. During the two-year contestability period, carriers are fully within their rights to take this action. The consequence, of course, is no coverage for the client and a chargeback of any commissions earned, depending on the carrier’s policies and the specific circumstances involved.
BOTTOM LINE:
In today’s environment, particularly with accelerated underwriting cases that involve less agent interaction, it is absolutely essential to confirm a client’s current health status before signing the delivery receipt. In every case, when that receipt reaches you for your signature, take the time to ask whether there have been any changes in the client’s health since the application was submitted. While every advisor wants to finalize delivery quickly, this step represents your final responsibility to the carrier before the life insurance coverage is placed in force.
Remember, rescission is never a good outcome – for the client, the advisor, or the carrier.
Contact the AgencyONE Underwriting Team at 301.803.7500 for more information or to discuss a case.
