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  








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            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  








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            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  








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            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