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If you use consumer reports to underwrite insurance policies or screen high-risk applicants, you must comply with the Fair Credit Reporting Act (FCRA).
The FCRA is designed to protect the privacy of consumer report information — sometimes informally called “credit reports” — and to guarantee that information supplied by consumer reporting agencies (CRAs) is as accurate as possible.
Consumer reports may include information about a person’s credit history, medical conditions, driving record, criminal activity, and even their participation in dangerous sports.
Insurer Obligations
You must have a permissible purpose before obtaining a consumer report — generally, that the report will be used in connection with the underwriting of insurance involving the consumer or with the consumer’s permission (§ 604) — and must take certain steps after you take an adverse action based on information in the report.
Getting and Using Medical Information
If you need a consumer report that has medical information, you must get the applicant’s
permission before the CRA can issue the report. § 604(g)(1)(A). You may share the medical information only to carry out the transaction for which the report was obtained, or as permitted by law. § 604(g)(4).
Adverse Action Notice
When an adverse action is taken — for example, when insurance is denied, rates are increased or a policy is terminated — and the decision is based partly or completely on information in a consumer report, Section 615(a) of the FCRA requires you to provide a notice of the adverse action to the consumer. The notice must include:
- the name, address and telephone number of the CRA that supplied the consumer report, including the toll-free telephone number for the CRA if it maintains files nationwide;
- a statement that the CRA that supplied the report didn’t make the decision to take the adverse action and can’t give the specific reasons for it; and
- a notice of the individual’s right to dispute the accuracy or completeness of any information the CRA furnished, and the person’s right to a free report from the CRA, within 60 days, if the person asks for it.
Disclosure of this information is important because some consumer reports may have errors. The adverse action notice is required even if information in the consumer report wasn’t the primary reason for the denial, rate increase, or termination. Even if the information in the report played only a small part in the overall decision, the applicant must be notified.
While adverse action notices are not required to be in writing, many insurers provide them in writing and keep copies for two years to prove compliance with the FCRA.
Examples
These situations show when an adverse action notice must be given to insurance applicants.
A life insurance company orders a consumer report from the Medical Information Bureau (MIB), a CRA. Information in the MIB report leads to further investigation of the applicant. The application for insurance is rated or declined because of information learned from the investigation, whether the decision was based partly or completely on the information.
Section 604(g) of the FCRA requires an insurance company or any other user of medical information to get the consumer’s consent — orally, electronically or in writing — before getting medical information. That means the life insurance company in this situation would have to have obtained the consumer’s consent before getting the consumer report from the MIB. In addition, since the MIB report was part of the basis for the adverse decision in this case, the Section 615(a) adverse action notice described above must be sent to the consumer.
A person with an unfavorable credit history, say, due to a bankruptcy, is denied automobile insurance at standard rates. Although the credit history was considered in the decision, the applicant’s limited driving experience was a more important factor.
The applicant is entitled to the Section 615(a) adverse action notice because the credit report played a part — even a small one — in the insurer’s decision to charge a higher premium.
An insurance company orders a consumer report on an existing policyholder to make sure the policyholder continues to qualify for the coverage in the policy. The insurance company learns that the consumer’s credit history has declined since the policy was written originally, and raises the consumer’s premiums.
The applicant is entitled to a Section 615(a) adverse action notice, because “adverse action” includes an increase in the charge for existing insurance or another unfavorable change in the terms of existing insurance, such as the amount of coverage or the policy’s terms.
§ 603(k)(1)(B)(i).
Disposing of Consumer Report Information
When you finish using a consumer report, you must securely dispose of the report and any information you gathered from it. That means burning, pulverizing or shredding paper documents, and disposing of electronic information so that it can't be read or reconstructed. For more information, see Disposing of Consumer Report Information? Rule Tells How.
Other Considerations
If you report information, like a consumer’s insurance claims, to a CRA, you have legal obligations under the FCRA’s Furnisher Rule. Your responsibilities include:
- furnishing information that is accurate and complete, and
- investigating consumer disputes about the accuracy of information you provide.
For more information, see Consumer Reports: What Information Furnishers Need to Know.
Non-Compliance
If you don’t comply with the FCRA, you may be sued by the FTC, Consumer Financial Protection Bureau (CFPB), state governments, or in some cases, consumers. The FCRA provides for maximum penalties of $4,367 per violation in the case of lawsuits brought by the FTC. FCRA Sections 616, 617, 621
Your Opportunity to Comment
The National Small Business Ombudsman and 10 Regional Fairness Boards collect comments from small businesses about federal compliance and enforcement activities. Each year, the Ombudsman evaluates the conduct of these activities and rates each agency's responsiveness to small businesses. Small businesses can comment to the Ombudsman without fear of reprisal. To comment, call toll-free 1-888-REGFAIR (1-888-734-3247) or go to www.sba.gov/ombudsman.
The FTC works to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint or get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. Watch a video, How to Report Fraud at ReportFraud.ftc.gov, to learn more. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
[Note: Edited January 2022 to reflect Inflation-Adjusted Civil Penalty Maximums.]
MIB, formerly known as the Medical Information Bureau, is a company that insurers use to look at the health history of potential customers. MIB keeps a database of things that may affect whether or not you can get insurance. Members can see your health conditions and other details using MIB services.
Learn more about what MIB does and why it matters when you’re buying health insurance.
MIB gathers and shares information to help life and health insurance companies evaluate the risk of insuring customers. MIB is an information exchange. Insurance companies provide information for the database. Other insurers can then use it to cross-check applications from new customers.
MIB matters if you’re thinking of buying insurance. Before offering you coverage, insurers want to know about any health issues you may have, problems in your motor vehicle history, your prescription drug use, and more. This lets them decide how much risk it will be to insure you. One of the tools insurers use to research those topics is MIB.
For example, when you apply for life insurance, the insurance company might check with MIB to see if you have any health conditions that you did not put on your application. If MIB reports that your application might be missing important details, the insurance company will do more research to make sure that your application is correct.
Companies cannot submit data to MIB without your consent. They also cannot check your MIB record unless you agree to it. When you apply for insurance, you should receive a disclosure that explains how your data will be used.
MIB is a member-owned organization that collects information and shares it with members. The membership consists of life and health insurance companies, and information in the MIB database comes from members. The concept is similar to a credit bureau that tracks your credit history with lender-provided information.
Insurers use MIB for several types of insurance:
- Life
- Health
- Disability income
- Critical illness
- Long-term care
When you apply for life or health insurance, insurance companies may ask about your health conditions. They want to know about any issues that increase the risk that they will have to pay benefits. For example, insurers want to know if you have a life-threatening health condition or dangerous hobbies you frequently engage in.
Some guaranteed issue policies do not ask any questions about your health, making these policies easy to qualify for. However, you may have to pay relatively high premiums or have limitations on your coverage.
If you get insurance through an employer, the coverage doesn’t typically require underwriting. You’re automatically covered. When you apply for individual insurance, though, you usually have to fill out an application and be approved. The information from your application may go to MIB.
MIB doesn’t store your actual medical records, such as lab results or prescriptions. Instead, members send codes to MIB. Each code stands for a broad category of medical information that is important for insurance underwriting, most often things that would impact your health and life expectancy. Insurers then compare these codes to your application.
When you answer questions on a life insurance application, it’s important to respond accurately and honestly. Insurance companies double-check your answers with any information available to them. MIB is one of the data sources they might use. If MIB reports that your application is missing information about a health condition, for example, the insurance company will investigate further. They may ask you to provide more information until the issue gets cleared up.
You will only have an MIB file if you’ve applied for individually underwritten insurance with an MIB member in the last seven years. And if you’re in good health and there are no known risk factors in your history, you might not be in the MIB database.
Doctors and hospitals do not provide information directly to MIB. Your insurance company, though, might ask to access medical records from doctors you’ve seen in the past. Those records can be used along with your application and MIB data to arrive at an approval decision.
MIB helps insurance companies gather accurate information about new customers. According to MIB, this results in better risk management for insurers, which means lower premiums for customers. And by simplifying the underwriting process, these types of databases make it possible to buy insurance online quickly with no medical exam.
This also means that it’s best to be honest when you apply for insurance. Any mismatches can lead to additional paperwork and delays in processing your application.
You might not like the thought of your health information in a database. As with credit reporting and other consumer data, you have the right to view your MIB reports and dispute inaccurate information.
When it comes to approval and pricing decisions, MIB does not approve or deny coverage. Instead, your insurer uses MIB to detect anything missing in your application. You might have forgotten to include that information or left out important details on purpose. Ultimately, the insurance company is the one that reviews your application and makes the decision.
- MIB gathers health-related information from life and health insurance applications into one database.
- Insurance companies that are members of MIB can compare information on your applications to the MIB database to help the insurance underwriting process.
- You might not have an MIB file if you’re in good health or you have not applied for individually underwritten insurance for seven years.
- MIB does not decide if you get approved or how much you pay for insurance.
- You have the right to review your MIB file and dispute any errors.