What law requires insurers to explain their reasons for denying coverage?

The correct answer is identified as the Fair Credit Reporting Act (FCRA). This law plays a significant role in consumer protection, particularly concerning credit reporting and the information used by insurers when making underwriting decisions. Under the FCRA, when an insurer denies coverage or takes any adverse action based on information in a consumer report, they are obligated to provide the consumer with a notice that includes the reasons for the denial. This requirement ensures transparency in the underwriting process and allows consumers to understand the factors that influenced the insurer's decision, giving them the opportunity to correct any inaccuracies in their credit report that may have contributed to the denial.

The importance of this transparency is rooted in the principle of fair treatment, allowing individuals to receive explanations that they can act upon if they believe the denial was unjust or based on erroneous information. This fosters trust and accountability in the insurance industry, as consumers are informed about the criteria insurers use to assess their applications.