BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 2056| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 2056 Author: Dababneh (D) Amended: 5/22/14 in Senate Vote: 21 SENATE INSURANCE COMMITTEE : 10-0, 6/11/14 AYES: Monning, Gaines, Corbett, Correa, DeSaulnier, Mitchell, Nielsen, Roth, Torres, Vidak NO VOTE RECORDED: Lieu SENATE APPROPRIATIONS COMMITTEE : 7-0, 6/23/14 AYES: De León, Walters, Gaines, Hill, Lara, Padilla, Steinberg ASSEMBLY FLOOR : 78-0, 5/15/14 (Consent) - See last page for vote SUBJECT : Insurance: pet insurance SOURCE : Department of Insurance DIGEST : This bill 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. ANALYSIS : Existing law: CONTINUED AB 2056 Page 2 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 the Insurance Code (INS) 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. 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. Defines "pet insurance" as an individual or group insurance policy that provides coverage for veterinary expenses. 2. Requires disclosure of specified categories of exclusions, coverage limits, and whether the insurer reduces coverage or increases premiums based on the insured's claim history. 3. Defines various terms, requires the use of those terms in the policy, and requires the insurer to post definitions of those terms on its Web site. 4. Requires 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 Web site. 5. Requires 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 Web site. CONTINUED AB 2056 Page 3 6. Requires 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 look period"). 7. Provides 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. 8. Permits the IC to impose civil penalties of up to $5,000 for each violation and up to $10,000 for each willful violation. 9. Requires 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 (CDI) administrative law bureau when the matter involves a common question of law or fact with another proceeding arising under other INS provisions. 10.Grants the IC the power to adopt reasonable rules and regulations necessary to administer this part. 11.Delays implementation of this bill until on or after July 1, 2015. Background Pet insurance covers veterinary and other pet-related medical expenses. It is statutorily defined as "miscellaneous insurance" under the Insurance Code and regulated as a form of property and casualty insurance. However, according to the CDI, 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 Senate Insurance 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 CONTINUED AB 2056 Page 4 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 requires the insurer to provide with the policy and post on its Web site 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 existing law already prohibits an insurer from misrepresenting the terms or benefits of a policy, this bill further requires an insurer to highlight the areas of probable confusion identified in the bill and provides the consumer with a 30 day "free look" period to reconsider the purchase. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No According to the Senate Appropriations Committee, administration and enforcement costs of less than $50,000 annually (Special Fund). SUPPORT : (Verified 6/23/14) Department of Insurance (source) 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 Social Compassion in Legislation ARGUMENTS IN SUPPORT : According to the author's office, 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. This bill requires pet insurers to disclose this information regarding CONTINUED AB 2056 Page 5 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. ASSEMBLY FLOOR : 78-0, 5/15/14 AYES: Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom, Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley, Dababneh, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox, Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell, Gray, Grove, Hagman, Hall, Harkey, Roger Hernández, Holden, Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson, Perea, John A. Pérez, V. Manuel Pérez, Quirk, Quirk-Silva, Rendon, Ridley-Thomas, Rodriguez, Salas, Skinner, Stone, Ting, Wagner, Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, Atkins NO VOTE RECORDED: Mansoor, Vacancy AL:kd 6/24/14 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED