Because of their acknowledged dependence upon information about individuals, insurance institutions are reluctant to deprive themselves of inexpensive access to it. There are few restrictions within the industry on the sharing of personally identifiable information or on obtaining it from sources outside the industry. This is true of insurance institutions and support organizations alike, and can lead to some highly questionable collection, use, and disclosure practices.
As indicated earlier, the Medical Information Bureau, until recently, retained claims information even though it no longer allowed it to be reported, and inserted a "failure to find impairment previously reported" code rather than deleting the impairment reference. To maximize the utility of information already collected, insurance institutions also piggyback on the information collection and use practices of other insurance institutions and support organizations. This dependence adds . to the widespread exchange of information throughout the industry, not only by organizations like the Medical Information Bureau and the Impairment Bureau but by investigative-reporting agencies (inspection bureaus) and other insurance-support organizations that save and reuse the information they collect. Thus, once a mistake enters the system, its adverse effects are likely to proliferate, resulting in repeated unfairness to the individual.
The competition among insurance institutions has generally militated against adequate sensitivity to the fairness issue in record keeping. To be sure, this situation has been changing as particular companies have promulgated privacy protection principles to be followed in the conduct of their business. Except for the support organizations subject to the Fair Credit Reporting Act, however, record-keeping practices still remain by and large discretionary within the industry.
Insurance institutions and their support organizations have been concerned about certain types of disclosures to third parties and about data security problems. The admitted purpose of these safeguards, however, is to protect the business privilege as a limited defense to common law actions of defamation. Thus, they do little to constrain exchanges of information about individuals within the industry or to control the quality of the information used.
The lack of attention to fairness issues in record keeping about individuals has resulted in the structuring of information flows and uses so that neither the insurance institution nor the individual applicant, insured, or claimant is responsible for the quality of the information used. The individual is at a disadvantage because record-keeping practices within the industry are opaque from his point of view. He currently enters into an insurance transaction without being aware of the relationship's implications for his personal privacy because he does not understand how extensive or intrusive information gathering may be. Nor does he know the consequences of the notices on his application-for example, that the Medical Information Bureau notice means information about him may be reported to the Bureau not only from the application itself, but also as a consequence of the underwriting investigation the insurer may conduct. Because he lacks adequate knowledge of the practices followed, the individual cannot make the forces of the marketplace work for him. He is not given an opportunity to weigh the relative benefits which might be obtained through the insurance transaction against the personal cost of revealing and having others reveal information about him.
Nor does the individual always know why the insurer is collecting information about him, or when it is being collected for purposes unrelated to establishing his eligibility for an insurance benefit or service. Insurers frequently collect marketing and actuarial information through the application. When a claim is filed, they may collect information for the purpose of reviewing the propriety of a treating doctor's fees or procedures as well as the eligibility of the particular claimant or the particulars of the specific claim. They may collect additional information to determine the advisability of continuing to market a particular kind of insurance. Yet, they do not normally advise the individual that this is being done.
The individual is also placed at a disadvantage when he is asked to sign a form authorizing the release of recorded information about himself, because he is not specifically apprised of what he is consenting to. The commonly used blanket authorization form, in essence, authorizes the release of all information about the individual in the hands of anyone. Moreover, the type of authorization form currently used by insurance institutions typically has no stated purpose or expiration date, and may not be limited either as to the scope of the investigation or as to the sources of information. This again reflects the natural reluctance of insurance institutions to deprive themselves of easy access to any potentially useful information, or to decide in advance what information is needed for what purpose.
As far as fair use is concerned, the relationship between the individual and an insurer is often unnecessarily and undesirably attenuated. Information he provides about himself is only partly the basis for the decision made about him, and the decision is made by someone he does not know and with whom he normally has no direct interaction. In addition, records maintained by a variety of institutions within and without the industry may be brought to bear on the decision about him, while he believes he is only dealing with one such institution. That one institution, moreover, assumes no obligation to give him access to the information compiled about him or to afford him the opportunity to correct or amend information he believes to be inaccurate.
Under the existing system, the individual cannot adequately protect himself against the use of poor quality information in making underwriting decisions about him. Frequently, the individual is not told the reason for an adverse insurance decision. The insurance laws and regulations of many States require insurers to disclose to the individual (in some cases, only on request) the general reasons for cancelling or refusing to renew a personal automobile insurance policy. Few States, however, require insurance institutions to give individuals the reasons for a declination or a rating.74 If the reason and supporting information for an adverse underwriting or rating decision do not arise out of a report prepared by a support organization subject to the disclosure provisions of the Fair Credit Reporting Act, the individual may be unable to find out why the decision was made, or whether inaccurate or incomplete information was at fault.
Life and health insurance institutions generally advise an applicant of the information that led to an adverse underwriting or rating decision only if they consider the information harmless (e.g., hazardous occupation, obvious health impairment). Typically, however, the specific items of information and their source are not revealed unless they came from a support organization subject to the Fair Credit Reporting Act, or from the applicant himself. When an individual requests a specific explanation for an adverse decision and the basis was medical-record information, most life insurers will divulge the information, but only to the applicant's personal physician. However, they virtually never tell the individual the specific reasons and supporting information for an adverse decision when the information concerns his character, morals, or life-style.
In property and liability insurance, an adverse decision may or may not lead to the insurer divulging the reasons and supporting information to the applicant. As in the life and health area, whether the insurer considers the information to be harmless will be a factor. With the exception of the State automobile insurance laws and regulations mentioned above, however, the consumer has no legal right to be told the reasons or information supporting an adverse insurance decision.
When an individual contacts the Medical Information Bureau, he or his physician, in the case of medical-record information, only learns the summary data that has been reported about him.75 He does not learn how the reporting insurance company translated the underlying information into a code, and while he is told where the underlying information is, he, unlike another insurer, cannot get it automatically from the reporting company.
If the adverse decision was based on information in a report prepared by an inspection bureau, the Fair Credit Reporting Act only requires the insurer to tell the individual the organization's name and address. [15 U.S.C. 1681m] The individual has the right to learn the "nature and substance" of the information about him in the inspection bureau's files, but this is no assurance that he will be able to identify the reason for the adverse decision or the particular items of information on which it was based. To go to the inspection bureau is time-consuming for the individual and may effectively prevent him from getting on firm enough ground to ask for reconsideration of the decision if it turns out that there was erroneous information in the report. To have a real voice in the quality of information on which decisions are based, the individual needs to know the reasons for the adverse action and the specific items of information that support the reasons.
The Commission is also concerned that the mere fact of a previous adverse underwriting decision may unfairly stigmatize an individual who applies later for comparable insurance. Without knowing the reasons for it, some insurers use the mere fact of a previous declination or other adverse decision by another insurer as the basis for rejecting an applicant.76 Yet a previous declination may have nothing to do with the individual's qualifications where, for instance, the insurer that declined him did so only because it had decided to restrict its underwriting in a certain area. Thus, when an insurer acts on the fact of a previous adverse decision alone, it may reject an individual whom it would otherwise have accepted if accurate and complete information were developed. Stigma may also result when an individual has previously purchased insurance from a "substandard" insurer or through an "assigned-risk" plan, even though the reasons for such previous action may not involve the individual or his eligibility directly.77
The Commission has not found that this problem exists in life and health insurance underwriting to the degree that it clearly does in personal property and liability insurance. Property and liability insurance applications often ask the individual whether he has previously been declined or rated, but rarely ask the reason for the rejection, presumably because, under the current system, the applicant will seldom know. A high percentage of the reasons may, in fact, relate to adverse characteristics possessed by the individual applicant or insured, as opposed to a general market condition unrelated to the individual's characteristics. Present practice, however, fails to distinguish between the two types of rejections.
Accepting from lay sources information that only a professional is competent to report is another questionable practice that stems from an insurer's reluctance to deprive itself of any information that may turn out to be useful. Medical-record information is crucial to life and health insurance underwriting and to claims processing. Collection of such technical information from anyone other than the individual himself, a medical source, or a close family member invites inaccuracies. Nevertheless, some insurers not only seek information concerning an individual's health from agents, or from the individual's neighbors, friends, and associates, but also use it as the basis for declining his application. Such information may also be communicated to other insurers. Until recently, the Medical Information Bureau accepted medical information obtained from lay sources, and the Impairment Bureau and the property and casualty loss indexes still do.78
Although support organizations such as the Medical Information Bureau have rules with respect to the type and quality of information reported to them, the rules are difficult to implement and enforce. The MIB, for example, has no way of knowing, except through periodic audits of member companies, whether medical or other information reported to it has come orginally from an authorized source. Thus, it cannot effectively control the quality of information in its files. Nor does the Bureau keep a complete accounting of all the disclosures,79 the result being that it cannot always propagate corrections when inaccuracies are discovered. The property and liability loss indexes also have no way of knowing whether a subscriber has falsely filed an index card without having a real claim, or whether, once received by an insurance institution, the index information is used for other purposes, such as underwriting, or making a personnel decision.80
Perhaps the best example of the inability of support organizations to regulate the use of the information they provide is the Medical Information Bureau's rule which prohibits the use of a Bureau report, intended only as an alert, as the basis for declining an applicant.81 Compliance with this rule has not been carefully audited in the past, and testimony before the Commission by the MIB indicates that as a result of the MIB's own audits there is evidence that some life insurers do render adverse decisions based solely on Medical Information Bureau codes.82 Furthermore, the reinvestigation requirement the MIB imposes on its members can be satisfied by going to an inspection bureau and getting information on file there-the same information which another insurer may have used to decline the applicant.
To some extent these problems are endemic to data exchanges, like the MIB, that are controlled by their users. Being wholly dependent, they cannot be expected to enforce their rules against those who sustain them. The end result, however, is that poor quality information can, in a variety of ways, cause an individual to be denied an insurance benefit or privilege for which he would otherwise be eligible. The insurer may lose too, by forfeiting a customer or by having its relationship with an existing policyholder deteriorate. Obsolete, inaccurate, or incomplete information serves no one.