BILL ANALYSIS                                                                                                                                                                                                    






                             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