In the U.S. I guarantee you that most insurance companies are NOT doing this. What this company is doing is called "Bad Faith" in insurance jargon. And the penalties for this sort of behavior are enormous, and can even include the possibility of the company losing its license to sell insurance in a particular state.
> The insurance industry as a whole is seriously messed up and congress seems unwilling to do anything about it.
Congress doesn't do much with insurance because insurance in the U.S. is regulated at the state level, not the federal level.
We may be talking past each other here. I was referring to property and casualty insurance in my comment, while it sounds like you're talking about health and disability insurance. Two completely different worlds and regulatory frameworks.
Now if you are in line for a large payout the insurance company will definitely review your application to see if you lied. Significant lies will get your policy cancelled and no payout. So don't lie on any insurance applications.