State regulators call for consistent pet insurance rules

Association offers new model law to protect consumers

August 19, 2022 (published)

Laws on pet insurance, rare in the United States, may become more common now that a group of state insurance heads has approved a model law on the subject.

The National Association of Insurance Commissioners (NAIC), whose 56 voting members represent the 50 states, the District of Columbia and five U.S. territories, on Saturday gave a nearly unanimous thumbs-up to a model Pet Insurance Act. The representative of New York, where different pet insurance legislation is pending, abstained.

The model is a guide, with no regulatory power. Approval by a given member of the NAIC means the member "will make efforts to have the model law introduced into his or her respective state legislature," unless their state has an existing law that meets or exceeds the standard set by the model, according to the association.

California was the first in the country to adopt comprehensive legislation specific to pet insurance. That law, which took effect in 2015, focuses on clear disclosures to consumers. This year, Maine became the second state to specify rules on pet insurance, following the NAIC model before it was finalized.

Fewer than 3% of dogs and cats in the United States and Canada are covered by pet insurance, but sales have been rising steadily for at least a decade. As more pet owners have bought coverage, complaints have followed. They include dismay over rising premiums, disputes about what constitutes a preexisting condition (which many policies exclude from coverage), and protracted waits for claims payments.

The model Pet Insurance Act requires a variety of disclosures to would-be buyers, including how it determines claims payments, and restricts certain practices. In summary, it:

  • grants buyers the right to a refund within 15 days of purchase if they have not filed a claim;
  • allows insurers to exclude coverage of preexisting conditions, while placing the onus on the insurer to prove the condition was, in fact, preexisting;
  • prohibits waiting periods on coverage for accidents;
  • allows, in new policies, waiting periods of up to 30 days for illnesses or orthopedic conditions not resulting from an accident, and requires a provision to waive the waiting period if the pet is examined by a veterinarian;
  • prohibits a requirement that the pet be examined by a veterinarian before policy renewal;
  • prohibits requiring that the buyer participate in a wellness program, which is not insurance, before being allowed to purchase insurance;
  • prohibits the marketing and sale of wellness programs during the sale, solicitation or negotiation of insurance; and
  • requires insurance salespeople (known as "producers") to be appropriately licensed and trained.

In brief

The model took a working group of the NAIC three years to complete during 25 meetings attended by representatives of the pet insurance industry, consumer interest groups and the American Veterinary Medical Association, among others.

Wanting a consistent approach by insurance regulators across the country, the North American Pet Health Insurance Association (NAPHIA) trade group was keen on seeing a model, although it pushed back against some aspects advocated by regulators, including the limit on waiting periods.

In the end, NAPHIA Executive Director Kristen Lynch said the group was "very pleased" that a model was adopted. "We look forward to working with state regulators and legislators to implement the model ..." she said in a written statement.

Consumer advocate Birny Birnbaum, executive director of the Center for Economic Justice in Austin and a former Texas insurance official, also praised the model law, although he didn't like everything in it.

"While not as strong as we wanted ... the model, if adopted by the states, will improve pet insurance consumer protections significantly," Birnbaum told the VIN News Service.

As an example of the give-and-take that occurred, Birnbaum and a colleague from the Center for Insurance Research sought to eliminate waiting periods for coverage, while NAPHIA pressed to maintain waiting periods that, in some instances, extend to 180 days.

The consumer representatives commented to the NAIC working group in 2021: "The industry has argued that waiting periods will weed out fraud and adverse selection, but this is precisely what preexisting conditions exclusions do already. ...

"Purchasers who buy pet insurance will expect to receive insurance coverage that begins when they pay the insurer and sign the policy contract. However, under NAPHIA's proposal, consumer[s] could actually purchase policies that provide no coverage until a future date, even though the insurer has already taken their premium dollars."

In the end, model-law writers opted to allow waiting periods in certain circumstances but for no longer than 30 days.

What isn't included

Some veterinarians with expertise in pet insurance said they were largely unaware of the process by which the model was developed and, when they learned of its completion, regretted not having known how to submit comments before the model was made final.

Dr. Frances Wilkerson, a relief veterinarian in the Chicago area who in 2009 started a consumer-education website called Pet Insurance University, said after reviewing the adopted model, "There are some things that I'm appreciative are there, but there are things I wish had been included."

For example, she said she would like to see a requirement that insurance companies "clearly disclose which body systems, diseases and injuries are subject to their bilateral-condition exclusion."

Bilateral conditions are those that can occur on both sides of the body, such as ear infections or cruciate ligament injuries. Some policies exclude coverage if the pet develops an issue on one side of the body that it previously experienced only on the opposite side, on the presumption that the development represents progression of an existing condition.

Wilkerson also is concerned that the definition of a preexisting condition is too loose. The model defines it as a condition for which a veterinarian provided medical advice, the pet received previous treatment, or, "based on information from verifiable sources, the pet had signs or symptoms directly related to the condition for which a claim is being made."

That last criterion makes her uneasy. "This has been the wording in many policies in the past, and it has led to people being denied coverage based on clinical signs that even the attending vet felt were unrelated," she said. For instance, a dog might be seen at some point for a limp that later could be construed by an insurer as a sign of an orthopedic problem, when the limp was from a transient injury.

Still, Wilkerson said she was glad to see that the model specifies that "The pet insurer has the burden of proving that the preexisting condition exclusion applies to the condition for which a claim is being made."

Despite the scarcity of state pet insurance laws to date, Wilkerson said she believes insurance policies have improved over the years. She credits pet owners. "I think consumers are more savvy," she said. "... [They] have basically pushed companies to be better."

Dr. Kent Kruse, a retired veterinary practitioner in Wisconsin who worked for decades as an executive for several pet insurers, said he, too, would have liked to have had a voice in the making of the model law. He was uncomfortable that the pet insurance lobby had a strong influence in the process, since the main role of insurance regulators is to protect consumers.

After learning that the AVMA and consumer representatives took part in the drafting, Kruse admitted the approved model law seemed balanced and appropriate. "What concerns me now is what is not included in the model law," he said. The missing piece that concerns him is whether veterinarians, who, for the most part, are not licensed to sell insurance, may proactively recommend pet insurance, including specific brands or policies.

A self-described "pet insurance protagonist," Kruse has long advised veterinarians to help pet owners evaluate policies to find those that best serve their pets' needs. "Veterinarians are uniquely qualified to provide that advice because of their exposure as to how various policies perform," he said.

The NAIC pet insurance working group initially considered the question of licensing, then referred it to a licensing working group, which reviewed the issue last year. The recommendations it considered ranged from naming pet insurance as a "limited lines" product, like travel insurance or car rental insurance, which have simpler salesperson licensing requirements; to requiring a "general lines" license, which is much more involved because it authorizes the licensee to sell all major lines of insurance, including life insurance, accident insurance, property insurance and the like.

Comments the licensing working group received from several states and others, including the AVMA, demonstrated no consensus on a preferred course. In the end, the NAIC opted to leave the licensing question to states to determine for themselves.

Whether and how much veterinarians should be involved with the sales of pet insurance is a controversial question for the profession. Some, like Kruse, maintain that insurance-holders are better able to afford care, which saves lives and improves veterinarians' revenue. Others want nothing to do with promoting a third-party product.

Kruse believes that veterinarians who do their homework on pet insurance offerings are better positioned to provide educated and unbiased purchase recommendations than people in the insurance industry. "Who are the licensed insurance agents who supposedly are best suited to provide advice?" he said. "The only ones I know earn commissions because they work for the pet insurance carriers."

Correction: The article has been changed to reflect that the NAIC has decided that the question of licensing requirements for those who sell or promote pet insurance should be left to states to decide for their respective jurisdictions. The story originally reported inaccurately that a NAIC working group was still reviewing the issue.

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