BILL ANALYSIS                                                                                                                                                                                                    Ó


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                                    THIRD READING

          Bill No:  AB 2056
          Author:   Dababneh (D)
          Amended:  8/6/14 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  

           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.   

           Senate Floor Amendments  of 8/6/14 clarify that the provisions of  
          this bill apply to any policy issued to a California resident  
          and provide additional guidance that the definitions for  


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          "limitations" and "exclusions" must be used only if the policy  
          contains limitations and exclusions.

           ANALYSIS  :    

          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 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. Specifies that its provisions apply to policies issued by  
             companies both in and outside California to California  



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           5. 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.

           6. 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.

           7. 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  

           8. 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  

           9. Permits the IC to impose civil penalties of up to $5,000 for  
             each violation and up to $10,000 for each willful violation.   

           10.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  

           11.Grants the IC the power to adopt reasonable rules and  
             regulations necessary to administer this part.

           12.Delays implementation of this bill until on or after July 1,  

          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,  



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          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  
          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  

           SUPPORT  :   (Verified  8/7/14)

          Department of Insurance (source)
          Actors and Others for Animals
          American Society for the Prevention of Cruelty to Animals
          Consumer Action
          Consumer Federation of California
          Humane Society of the United States
          Pet Industry Joint Advisory Council
          Social Compassion in Legislation



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           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  
          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:k  8/7/14   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

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