BILL ANALYSIS Ó
SENATE INSURANCE COMMITTEE
Senator William W. Monning, Chair
AB 2056 (Dababneh) Hearing Date: June 11, 2014
As Amended: May 22, 2014
Fiscal: Yes
Urgency: No
VOTES: Asm. Floor (05/15/14)78-00/Pass
Asm. Appr. (05/07/14)17-00/Pass
Asm. Ins. (04/23/14) 13-00/Pass
SUMMARY Defines "pet insurance" and other terms frequently
used in pet insurance policies; requires an insurer offering pet
insurance to provide disclosure and a summary of exclusions from
and limitations on coverage and benefits; imposes a 30-day "free
look" period; and specifies procedures and penalties relating to
violations of these requirements.
DIGEST
Existing law
1. Prohibits the transaction of any class insurance in this state
without first begin admitted for that class.
2. Grants the Insurance Commissioner (IC) oversight authority and
specified powers to enforce violations of most of California
insurance laws.
3. Categorizes any insurance not already classified in a category
listed in Chapter 1 of Part 1 of Division 1 of the Insurance
Code as "miscellaneous insurance" and regulates it as a form of
property and casualty insurance.
a. Requires a property and casualty broker-agent license to
transact that type of insurance.
AB 2056 (Dababneh), Page 2
b. Requires insurance policy rates to be reviewed and
approved by the IC.
c. Prohibits rates from being excessive, inadequate, or
unfairly discriminatory.
This bill
1. Would define "pet insurance" as an individual or group
insurance policy that provides coverage for veterinary
expenses.
2. Would delay implementation of the bill until on or after
July 1, 2015.
3. Would require disclosure of specified categories of
exclusions, coverage limits, and whether the insurer reduces
coverage or increases premiums based on the insured's claim
history.
4. Would define various terms, require the use of those terms
in the policy, and require the insurer to post definitions
of those terms on its website.
5. Would require the insurer to provide a summary description
of the basis or formula used to determine claims payments in
the policy and post that description on its website.
6. Would require the insurer to disclose in the policy, when
applicable, the terms of benefits schedules or limitations
based on usual and customary fees and post that information
on its website.
7. Would require the insurer to provide the consumer with a
notice that the policy may be canceled by returning it to
the insurer within a period of no less than 30 days ("free
AB 2056 (Dababneh), Page 3
look period").
8. Would provide that returning the policy within the free
look period voids the policy from the beginning with all
premiums refunded, so long as no claims have been paid or
that the insurer has not notified the insured that a claim
will be paid.
9. Would permit the IC to impose civil penalties of up to
$5,000 for each violation and up to $10,000 for each willful
violation.
10. Would require the IC to hold hearings in compliance with
the Administrative Procedure Act except that a hearing may
be held by the Department of Insurance's administrative law
bureau when the matter involves a common question of law or
fact with another proceeding arising under other Insurance
Code provisions.
11. Would grant the IC the power to adopt reasonable rules and
regulations necessary to administer this part.
COMMENTS
1. Purpose of the bill . According to the author, 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.
AB 2056 (Dababneh), Page 4
2. Background
Pet insurance covers veterinary and other pet-related
medical expenses. It is statutorily defined as
"miscellaneous insurance" under Insurance Code Section 120
and regulated as a form of property and casualty insurance.
However, according to the Department of Insurance, pet
insurance is marketed like health insurance. The American
Pet Products Association estimates that U.S. consumers spent
about $14.37 billion dollars on veterinary care in 2013.
The committee received a letter from one consumer that
offers an example of the potential confusion that may be
alleviated by this bill. Based on marketing information, it
appeared to the consumer that the policy would cover 90% of
typical medical bills. However, according to the consumer,
the insurer only approved 90% of the benefit schedule
allowance based on the policy restrictions which only
amounted to about 35% of the actual expenses. (After the
consumer pressed the issue, the insurer later approved
coverage for the full amount.)
To address confusion regarding benefit terms, this bill
would require the insurer to provide with the policy and
post on its web page an "Insurer Disclosure of Important
Policy Provisions" that includes a summary of benefit
payment provisions.
As with any legal document or contract, insurance policy
language of any kind can be highly complex and confusing,
even to a sophisticated consumer. While current law already
prohibits an insurer from misrepresenting the terms or
benefits of a policy, this bill would further require an
insurer to highlight the areas of probable confusion
identified in the bill and provide the consumer with a 30
day "free look" period to reconsider the purchase.
3. Arguments in Support
Consumer Action compares health insurance for humans and pet
insurance noting that as the limitations of pet insurance
increasingly diverge from a pet owner's own health
insurance, pet insurers must be required to disclose key
information about their policies so that consumers can more
effectively choose the most appropriate policy for their
AB 2056 (Dababneh), Page 5
needs.
4. Arguments in Opposition
None received.
5. Prior and Related Legislation
AB 2411 (Jones, 2009-10), would have defined pet insurance
as a separate line of insurance, established required policy
terms for all pet insurance policies serving California
residents, and increased clarity for consumers on what their
policy covers. Vetoed by Governor Schwarzenegger.
POSITIONS
Support
California Department of Insurance (sponsor)
Actors and Others for Animals
American Society for the Prevention of Cruelty to Animals
Consumer Action
Consumer Federation of California
Gary Lucks
Humane Society of the United States
Pet Industry Joint Advisory Council (PIJAC)
Social Compassion in Legislation
Oppose
None received.
Consultant: Hugh Slayden (916) 651-4773