This American Life ran an excellent story about the practice of recission by insurers.
Recission is the practice of cancelling a policy on the grounds that the customer lied, or provided factually incorrect information, on the application form. What makes this practice especially dubious is the applications are so difficult to fill out that the CEO of the company issuing them can't fill them out. How can a regular consumer be expected to fill out the application correctly?
In practice, recission is a tool that the health insurance companies can use as a get out of paying for expensive claims for free card. The insurance PR spin will say that "Recission is not about cost", or it's an innocent business process that they need to do to deliver the best care that they can to their policy holders.
It wouldn't be difficult to find correlation between rescinded policies that have, or show leading indicators of, major claims and policies that do not. We don't hear about people whose policies are cancelled for no reason, but then again, who would really make a fuss about it. I'd love to see figures correlating recission to expected costs.
Recission may have started as a way to drop policy holders who opened a policy in bad faith. What it is in practice is an option that the insurance company can use to ditch paying expensive claims and improving the profit margins.
I'd love to hear someone sincerely try to defend this practice. How is it not fraud?