I had an interesting conversation with a CRNA client that I would like to share.
My client explained that she recently received a solicitation letter for insurance coverage from a professional organization to which she is a member. The letter strongly cautioned that she should be wary of conducting business with “non-admitted” insurance companies. This professional organization promotes, sponsors, and sells various types of insurance coverage to their members.
My client explained to me what the letter said, and her thoughts about its meaning. The tenor of the letter made the client concerned about the financial status of her insurance companies, and whether they were “admitted.” The solicitation letter didn’t explain what the term meant, but the implication my client drew was that there was an uncertain element to certain insurance companies which might be financially shaky. I don’t know whether this letter aimed to cause fear, but regardless of whether that was the explicit purpose, it did so.
I was initially surprised by this implication based on the insurance term of art, “admitted.” The term didn’t imply the same concerns to me as an insurance specialist. Then, I thought about it further, and realized that context is vital to understanding when a word or phrase has special meaning that is different than general usage for the term. This is the essence, and problem, with jargon.
It turns out that my client’s insurance company where she purchased her individual disability policy through Set for Life was “admitted” in her state, and I explained that to her. Further, I explained that this status was unrelated to the insurance company’s financial rating. This was the separate, nuanced, issue involved: the letter my client received spawned a misunderstanding about the financial status of insurers based on insurance jargon.
“Non-admitted” implied to an intelligent and educated person (but lacking insurance training), that there may be a financial deficiency with some insurance companies. It made her question her decision to purchase her own insurance, and it made her uncertain about the financial rating of her insurance company.
The conversation made me reflect on the meaning of insurance terms of art, and how they differ from the general meanings of the same words; and how reasonable inferences drawn by a layperson could lead to misunderstanding and fear.
Specific to this particular term, it’s important to demystify what “admitted” and “non-admitted” mean in the context of an insurance company. These terms of art do not have anything to do with the financial rating of an insurance company. Further, in more general terms, it’s worthwhile to consider when you are faced with jargon that is confusing, or ambiguous, since it can cause misunderstandings which lead to fear.
“Admitted Insurance Companies”
Insurance companies that are “admitted” follow rules set by the state department of insurance where they conduct business. The “admitted” insurer’s rates, their business practices, advertisements and cash reserves are regulated by the state department of insurance. They are prohibited from deviating from their business decisions without prior approval from the state department of insurance. Importantly, “admitted” insurance companies are part of their state’s insurance guaranty fund, which pays claims if an admitted insurance company becomes insolvent.
“Non-Admitted Insurance Companies”
Insurance companies sometimes choose to be a non-admitted business, and are not required to follow state regulations. They have to prove to the state that they are financially able to conduct business. They do not have to report their rates to the state department of insurance, and have flexibility to charge according to risk exposure. This allows a “non-admitted” insurance company to accept higher risk applicants who have greater loss potential. Some insurance companies covering flood, earthquake, liability, and other special risks decide to be “non-admitted” entities, in part for the additional flexibility. A significant difference is that “Non-admitted” insurance companies are not part of their state’s insurance guarantee funds.
When deciding whether to place your insurance business with any insurance company, the financial rating of the insurer is one of the most important factors to evaluate. (Other important factors include, but are not limited to, things such as; policy terms, amount of coverage, length of coverage, price, etc.) There are several independent companies that rate insurance companies on their financial viability. The financial rating of an insurer is a distinct and separate concept from whether an insurer is “admitted” or “non-admitted” by a state department of insurance.
As a matter of practice, I show my clients the financial ratings of insurance companies that we discuss for potential insurance coverage. This allows us to discuss differences between the companies we are considering, based on independent information.
Like most industries and professions, there are specialized terms of art that apply to insurance. The context of an industry specific term of art is vital to understanding its meaning, which may differ from general usage of the same or similar words. Industry specific jargon can be confusing without specialized knowledge.
If you come across material that is confusing and uses jargon, then it’s best to dig a bit deeper. The producer of confusing jargon may intend to foster uncertainty and fear, or (less ominously) believe that they sound intelligent and authoritative by writing jargon filled, fuzzy, prose. Either consult with someone with specialized knowledge of the industry to help decipher the jargon, or do additional research so that you won’t be misled about the meaning of what you’ve been given.
If you have questions about insurance issues or your insurance coverage, I am always available to answer them.