BILL ANALYSIS Ó AB 2056 Page 1 Date of Hearing: April 23, 2014 ASSEMBLY COMMITTEE ON INSURANCE Henry T. Perea, Chair AB 2056 (Dababneh) - As Amended: February 20, 2014 And as Proposed to Be Amended SUBJECT : Pet Insurance SUMMARY : Increases disclosure of exclusions and payment provisions in pet insurance policies and establishes uniform definitions for exclusions commonly used in pet insurance policies. Specifically, this bill : 1)Clarifies that pet insurance is a "miscellaneous" insurance for the purpose of regulatory classification. 2)Requires pet insurance policies to use standard definitions for a number of terms including the following: a) "Veterinary expenses" are the costs associated with medical advice, diagnosis, care or treatment by a licensed veterinarian. b) "Pre-existing condition" is a condition for which a veterinarian has provided advice or treatment or a condition for which the pet exhibited signs or symptoms before the effective date of the insurance policy. c) "Waiting period" is the period of time from when the policy is effective and when some or all of the coverage begins. d) "Hereditary disorder" is a genetically transmitted abnormality that causes illness or disease. e) "Congenital disorder" is a condition present from birth which causes or contributes to an illness or disease. f) "Chronic condition" is one that can be treated or managed but not cured. 3)Requires pet insurers to disclose whether the policy excludes AB 2056 Page 2 coverage for any of the following: a) Pre-existing condition. b) Hereditary disorder. c) Congenital disorder. d) Chronic condition. e) Waiting period. 4)Requires pet insurers to disclose if any other exclusions are included in the policy and direct the consumer to the policy for details regarding those exclusions. 5)Requires pet insurers to provide consumers with a summary description of the method used to determine claim payments. 6)Requires pet insurers to allow anyone who purchases pet insurance to return the policy within 30 days with a full refund of any premium paid unless the insurer has paid a claim under the policy. If a claim has been paid, the option to return the policy is not available, and the cancellation provisions in the policy will apply. 7)Permits the Insurance Commissioner (commissioner) to impost civil penalties of up to $5,000 for each violation and up to $10,000 for each willful violation. 8)Requires the commissioner to hold a hearing regarding any violations and that the hearing is subject to the provisions of the Administrative Procedures Act. 9)Provides the commissioner with the authority to adopt regulations necessary to administer the provisions of this bill. 10)Defers implementation of the bill until July 1, 2015. EXISTING LAW : 1)Classifies pet insurance as property/casualty insurance. 2)Requires those selling pet insurance to be licensed as a AB 2056 Page 3 property/casualty broker-agent. 3)Requires property/casualty insurance policy rates to be reviewed and approved by the commissioner. 4)Prohibits property/casualty insurance rates from being excessive, inadequate, or unfairly discriminatory. FISCAL EFFECT : Undetermined COMMENTS : 1)Purpose . According to the sponsor, pet insurance policies are often difficult for consumers to navigate and understand. Typically there are several types of policies that itemize covered treatments, deductibles, and lifetime/per illness maximums. Additionally, the costs of different policies can vary based on the amount of coverage, the type of coverage, as well as the species, age, and breed of the pet. AB 2056 would require pet insurers to disclose this information regarding their policies so that consumers can more easily determine the most appropriate policy to fit their needs. By allowing consumers to better ascertain the constrictions and limitations of pet insurance policies, they will limit their financial risk, be more likely to purchase a product that fits their needs, and be less likely to complain when utilizing their pet insurance coverage. 2)Cost of Veterinary Care . According to the American Pet Products Association, the total United States pet industry expenditures in 2012 were an estimated $53.33 billion, $27.4 billion of which was spent on veterinary care and over the counter medicine. In 2011, total pet insurance expenditures accounted for $450 million and it is expected to grow rapidly to an estimated $750 million by 2015. 3)Miscellaneous Insurance . Pet Insurance is currently classified as miscellaneous insurance by the California Insurance Code (Section 120). All insurers offering pet insurance in California are currently licensed to sell miscellaneous insurance, and the bill codifies this classification of pet insurance by adding an explicit reference to pet insurance in Section 120. Codifying this classification is important because a change in the classification of pet insurance would require pet insurers to AB 2056 Page 4 amend their license to sell insurance and likely require pet insurers to comply with increased capital requirements. Formalizing this classification will not affect the how pet insurers report to the National Association of Insurance Commissioners (NAIC). The NAIC requires that pet insurers report under the inland marine category and existing provisions in the Insurance Code (Section 923) specify that insurers are to make their reports to the NAIC consistent with NAIC classifications. 4)Previous Legislation . AB 2411 (Jones) of 2010 passed the Legislature but was vetoed by the Governor. This bill is more expansive than AB 2411 in terms of the definitions, disclosure requirements, and enforcement mechanisms relating to pet insurance. REGISTERED SUPPORT / OPPOSITION : Support Department of Insurance (sponsor) Actors and Others for Animals Consumer Action Humane Society of the United States Pet Industry Joint Advisory Council Opposition None received Analysis Prepared by : Paul Riches / INS. / (916) 319-2086