NAIC Insurance Contract Readability Public Hearing Scheduled for March 28

Mar 21, 2010


The National Association of Insurance Commissioners (“NAIC”) Consumer Connections Working Group (“Working Group”) has scheduled a public hearing on insurance contract readability standards on March 28 as part of the NAIC Spring 2010 Annual Meeting in Denver, Colorado.

The hearing, which is scheduled from 7:30 a.m. to 9:30 a.m., will focus on the following issues pertaining to insurance contracts and related documents:

  • To which lines of insurance should the readability standards apply?
  • Should the entire contract be required to be scored?
  • Should defined terms be included in the scoring process?
  • Should the standard score continue to be the Flesch Reading Ease Score (a number from 0 to 100) as it is now, or should it be changed (e.g. a Flesch-Kincaid Grade Level, or some other measure)?
  • What other logistical questions are states likely to encounter if they move forward to revise their standards?

Colodny Fass will participate in the hearing and provide a report on the proceedings.


NAIC Working Group Updated on Insurance Contract Readability at Recent Meeting

At a December 6 update held as part of the NAIC’s Fall 2009 Annual Meeting, Working Group members learned more about the various aspects of insurance contract readability during a presentation in which Dr. Brenda Cude from the University of Georgia explained the difference between the terms “plain language” and “readability.”

“Plain language” is defined as “the simplest, most straightforward way, using only as many words as needed,” while “readability” is defined as “an objective assessment of the literacy required to read and understand.”

Referencing a “plain language” Web site (, Dr. Cude explained that, regardless of what style of presentation is selected when constructing an insurance contract, its content, design and structure should be considered.

According to the National Adult Literacy Survey, one in seven Americans cannot read or understand any written information in English.  Undiagnosed learning disabilities, immigration and high school dropouts are among the reasons for the nation’s low literacy rates.   (Literacy rates by state and county are available at

However, research has shown that even Americans with good literacy skills (defined as those who can read at a college level) prefer to read plain language, which is considered to be 8th grade-level.

Dr. Cude related that a recent study illustrated that consumers who understand their insurance products have more trust in their financial services providers.  Consumers who do not understand a particular insurance issue often will not admit it.  As a result, they may avoid buying insurance, wind up being cheated, or may make mistakes in the market, such as buying the wrong coverage or underinsuring their risk.

Readability can be measured in many ways.   The Flesch Reading Ease Score is determined by counting words, syllables and sentences, after which a formula is applied.  The Flesch-Kincaid Grade then converts the Flesch score into a U.S. grade-school level.

As a benchmark, the Harvard Law Review has a Flesch score in the low 30s, which equates to a Flesch-Kincaid level of college graduates.  Reader’s Digest has a Flesch score of 65, which converts to a Flesch-Kincaid level of 8th grade.

For insurance products, most state standards require a minimum Flesch score of 40.  Several states require scores of 45 or 50, which equates to a Flesch-Kincaid level of high school graduates.   Florida requires a minimum Flesch score of 45.

Dr. Cude explained that one of the risks of applying plain language standards to a complicated product such as insurance is that it may not even be possible to effectively communicate its substance in plain language.  Among the considerations raised by this issue is whether consumers will lose any legal rights if contracts are redrafted using plain language.

According to Dr. Cude, points to consider in regard to states’ requiring more readable insurance contracts are based on the answers to the following questions:

  • Should all lines of business be included? If so, should the same standard be required for all lines of business and all consumers?
  • Should all consumer materials be included (disclosures, certificates of coverage, applications, marketing materials, benefits booklets, riders, etc.) or just the policies/contracts?
  • Should the standard used be objective or subjective?  (Examples such as the Pennsylvania Plain Language Consumer Contract-which excludes insurance-and the Delaware homeowners’ insurance and auto insurance regulations were given.)
  • Would the standards apply to contracts that are not written in English?
  • Are standards for style, design and structure needed?
  • What should not be counted when scoring a document for readability (e.g., the policy title, medical terms, state-required language, words defined in the policy)?
  • Should alternative measures of readability be permitted? Should enforcement require certification?

To view an outline of Dr. Cude’s presentation, click here.

Discussion among the regulators present at the December 6 meeting revealed that Colorado plans to pursue the readability issue during its next legislative session, while a readability group in Wisconsin is focusing on applying the concept to property, casualty and health lines of business.

Life insurance lines of business have not received a similar focus among states, inasmuch as these lines already have been addressed by the NAIC’s Interstate Compact National Standards Working Group.

Meanwhile, the NAIC is conducting a survey of all the states to determine whether other jurisdictions are undertaking the readability issue. The survey results will be distributed to the Working Group for discussion during the next scheduled call prior to the 2010 Spring Annual Meeting.

The NAIC has two separate readability-related models, one for life and health, and another for property and casualty personal lines.  A few states have implemented the property and casualty model, whereas the life and health model has experienced a much wider implementation.


Florida Insurance Contract Readability Specifics

Section 627.4145, Florida Statutes outlines the State’s requirements for readable language in insurance policies.

Achieving readability requires Florida insurance policies to yield a minimum score of 45 on the Flesch Reading Ease test, the specific methods of which are further defined by the law.  

The Florida Office of Insurance Regulation (“OIR”) may authorize the application of a lower score if it determines that doing so will:

  • provide a more accurate reflection of the readability of a policy form;
  • is warranted by the nature of a particular policy form, or type or class of policy forms; or
  • is the result of language that is used to conform to the requirements of any law.

Any non-English language policy is considered to be compliant with Florida’s readability law if an insurer certifies that it has been translated from an English language policy that is already compliant.

Florida’s readability standards apply to all insurance policy text, with certain exceptions.  These include:

  • Policy language required by any collectively bargained agreement;
  • Any medical terminology;
  • Words that are defined in the policy;
  • Any policy language required by law, if the insurer identifies the excepted language or terminology and certifies in writing to the OIR that it is entitled to be excepted;
  • At the option of the insurer, riders, endorsements, applications and other forms made a part of the policy may be scored as separate forms, or as part of the policy with which they are to be used;

The standards, which apply to forms filed on, or after October 1, 1983, do not apply to:

  • Any policy that is a security subject to federal jurisdiction;
  • Any group policy covering a group of 1,000 or more lives at date of issue, other than a group credit life insurance policy or a group credit health insurance policy (however, certificates issued pursuant to a group policy delivered, or issued for delivery in Florida are not exempted.);
  • Any group annuity contract that serves as a funding vehicle for pension, profit-sharing or deferred compensation plans;
  • Any form used in connection with, as a conversion from, as an addition to, in exchange pursuant to a contractual provision for a policy delivered, or issued for delivery on a form approved or permitted to be issued prior to the dates that such forms must be approved under this section;
  • Any policy or form, partial revision, or renewal thereof, which is filed prior to October 1, 1983; or endorsements filed on or after October 1, 1983, that modify policy forms filed prior to October 1, 1983; and
  • Mortgage guaranty insurance policies, as defined in s. 635.011.


Should you have any comments or questions, please contact Colodny Fass.


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