An insured calls you under distress about the possible exclusion of a surgical procedure under their health insurance policy. They try to read their insurance policy, but are confused and frustrated as they don’t understand the language used. You meet with them to review the policy, but the wording is too convoluted for you to be 100% assured of the answer. Three phone calls later to the insurer and you finally get an explanation that can be translated to your client.
How often has that scenario played out for you or one of your clients? Insurance is a complex business, no argument there, but are insurance contracts too complicated and unreadable for the average policyholder?
Most states mandate that insurance policies and contract forms meet a readability test. The industry standard is a Flesch score of 40, that is equivalent to a high-school graduate’s reading level.
Wisconsin
The state of Wisconsin recently developed rules to increase the readability of its health insurance policies by mandating a readability score of 50 (equivalent to a 10th grade reading level), rather than 40. However, with the November 2010 election came a change in Governors and the newly appointed Wisconsin Commissioner of Insurance, Ted Nickel has, through an emergency administrative rule, begun the process of reversing that regulation.
The Office of the Insurance Commissioner found that implementing the new regulations significantly exceeded the anticipated costs for the insurance industry. It also noted that the federal government is expected to develop standards for policies to summarize benefits and explain coverage under federal health care reform. Maintaining the existing state regulations balances consumer protection and an "appropriate level of industry oversight without being overly burdensome," according to the commissioner's proposed order.
The original rule, besides establishing a readability mandate of a Flesch score of 50, also would have required insurance companies to make policies available electronically and to list what's not covered in one place instead of throughout a policy.
The Office of the Insurance Commissioner found that implementing the new regulations significantly exceeded the anticipated costs for the insurance industry. Scott Taylor, a Milwaukee lawyer who chaired the committee that developed the new regulations, challenged that telling the Milwaukee Journal Sentinel: "The final recommendations were very modest," he said, "and were not onerous or burdensome on the industry. These were changes they all agreed they could live with," Taylor continued.
Rhode Island
Beginning in August 2010, Rhode Island became the first state to impose a readability requirement for all health insurance policies, according to testimony from John Aloysius Cogan Jr., executive counsel to the state's Office of Health Insurance Commissioner. Rhode Island now requires a readability score of 65 on the Flesch scale, the highest in the nation. "While readability formulas have been a mainstay of insurance regulation since the 1970s, most states have established a readability requirement well above the reading level of the average American adult," Cogan said.
Some 34 states have objective readability standards that are based on the Flesch Reading Ease Formula, which measures average sentence length and the average number of syllables per word. Minimum scores range from 50 to 40, equal to 10th- to 13th-grade reading levels -- two to five grade levels above the reading level of the average American adult, Cogan said.
Medicare Readability
Medicare supplement insurance policies are required to have a score of 50. So, too, do policies that are part of an interstate compact for insurance regulation. For comparison sake, Reader's Digest magazine has a score of about 65; the Harvard Law Review has a score in the low 30s.
Personal Lines
Today, 20 states have statutes or regulations mandating certain levels of "readability" in personal lines. Only five have them for commercial lines, but three of those five--Florida, Michigan, and New York--account for a large share of commercial lines business.
Even if most states don’t have readability standards, those that do happen to have a nationwide impact because those policy forms developed by carriers and advisory organizations are built on a nationwide basis. In this way a stringent state standard can become, in effect, a national standard.
What is Readable?
A high Flesch score may still not result in a more readable insurance policy. According to Cogan, plain language and the use of the "active" voice are keys. Here’s an example he cited in the New York Times.
Example of Difficult to Read Insurance Policy Language
In the event a third party, including your employer/agent, is or may be responsible for causing an illness or injury for which we provided any benefit or made any payment to you, we shall succeed to your right of recovery against such responsible party. This is our right of subrogation. If you do not seek damages for your illness or injury, you must permit us to initiate recovery on your behalf (including the right to bring suit in your name).
Example of Readable Insurance Policy Language
Your injury or illness may have been caused by someone else. If so, we can collect from that person any claims we pay on your behalf. For example, if we pay for your hospital stay, we can collect the amount we paid for your hospital stay from the person who hurt you. We can also collect payment from that person even if he or she agreed to pay you directly or has been ordered by a court to pay you. If the person who caused your injury has already paid you, we can collect from you the amount he or she has already paid to you. This is called subrogation. In addition, if you do not try to collect money from the person who caused your injury, you agree to let us do so in your name.
Summary
Of course there is an administrative burden on insurers to revise policy forms to improve readability--- some would argue though that clarity will reduce customer service calls and appeals.
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