California to require clarity in pet health insurance policies

Lawmakers tighten loosely regulated pet health insurance arena

Published: August 14, 2014
By Jennifer Fiala

A bill regulating the pet health insurance industry has all but passed in California, with some predicting it could reach Gov. Jerry Brown’s desk by next week.

Once signed into law, AB 2056 will create the first regulations specifically designed to protect pet insurance consumers in the United States.

Senators voted in favor of AB 2056 on Monday. The bill, passed by the Assembly in May, responds to consumers who say they were wrongly denied coverage for their pet’s care or their policies paid less than expected for medical treatments.

With the governor’s signature, AB 2056 requires policies sold in California to contain clear language explaining coverage limits including coinsurance, waiting periods, deductibles and annual or lifetime policy limits. The policies also must allow consumers to return them for a full refund within 30 days of purchasing. 

"AB 2056 is an important first step into protecting consumers participating in this rapidly growing industry," said Assemblymember Matt Dababneh, author of the bill.

AB 2056 is California’s second attempt to require insurance companies to provide more information about the level of veterinary care covered by their plans. The General Assembly passed a bill similar to AB 2056 in 2010, but it was vetoed by then-Gov. Arnold Schwarzenegger.

Schwarzenegger reasoned that existing law already allowed the state Department of Insurance to regulate pet health insurance policies.

So far, that hasn’t happened. 

Many policyholders report that they’ve been burned by pet health insurance companies. An estimated 1 percent of all owners in the United States buy pet health insurance from the dozen or so businesses that operate nationally.

Some plans operate within an 80:20 reimbursement structure that has been criticized by owners and veterinarians for failing to reimburse claims when a practice’s charges are deemed excessive. Policyholders also lament that some stipulations on pre-existing conditions are unfair and poorly advertised.

"How is a torn ACL an illness?" a disgruntled dog owner recently questioned of Pets Best insurance

"ACL injuries are not compensable under our Accident Only plans. We consider ACL injuries to be degenerative and therefore an illness," a customer service representative replied to the online query. 

AB 2056 has attracted the endorsement of VPI Pet Insurance despite the fact that it, too, has been the subject of some negative reviews. The nation’s largest pet health insurance company hopes the new regulations will weed out bad actors.

“Perhaps not surprising in a relatively young and still growing industry, there have been pet health insurers that do not behave in a way we at VPI find ethical,” company officials said in an online statement

The bill, VPI officials added, “will end some of the behavior we believe is hurting us all — industry, veterinarians, pet-owners and, of course, pets.” 

The California Veterinary Medical Association did not take a stance on AB 2056. “We’re keeping an eye on it,” Executive Director Valerie Fenstermaker said.

During a recent press conference, California Insurance Commissioner Dave Jones estimated that the agency fields nearly 100 complaints annually regarding pet insurance. Most complaints, he said, revolve around pre-existing conditions that aren’t covered by insurers, to the surprise of policyholders.

Jones, a former member of the California State Assembly, authored the bill that Schwarzenegger vetoed in 2010. Later that year, he was elected the state’s insurance commissioner.

“California has the largest number of insured dogs and cats in the nation,” Jones said in a statement. “It is essential that consumers purchasing pet insurance understand what they’re getting for their money.” 

The passage of AB 2056 gives pet health insurance its own status in the state's insurance code separate from how it currently is categorized as miscellaneous property and casualty. It authorizes the commissioner to hold hearings to determine if an insurer is in violation of the provisions governing pet insurance and to assess a civil penalty of up to $5,000 for each violation or $10,000 for a willful violation, meaning there was a deliberate attempt to break the law.

“When policy terms are more easily understood, consumers are better able to select a product that meets their needs,” Jones said. “AB 2056 will help pet owners who want to limit the financial risk associated with the pet’s veterinarian bills while providing important consumer protections that are currently absent from pet insurance.” 

Update: The governor signed the bill on Sept. 30.

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