Locke Lord QuickStudy: Insurance Regulators Are Sniffing Around the Pet Insurance Industry

Pet insurance is receiving increased attention by regulators.  At the National Association of ‎Insurance Commissioners (NAIC) Summer Meeting in August 2019, the Plenary Committee ‎adopted a white paper entitled “A Regulator’s Guide to Pet Insurance” as well as approved a ‎request for Model Law Development that would address some of the common regulatory ‎concerns associated with pet insurance and the individuals and entities marketing and selling pet ‎insurance.‎ 

Heightened scrutiny is taking place, at least in part, due to recent enforcement actions against a ‎large pet insurer.  The Washington Office of Insurance Commissioner (WAOIC) started the ball ‎rolling in 2013 by monitoring a pet insurer for suspected use of unlicensed producers.‎ ‎  ‎Eventually, the WAOIC opened a targeted market exam.‎ ‎  The pet insurer and its affiliates ‎ultimately were fined in the aggregate more than a half a million dollars by regulators in Kansas, ‎Maine, Massachusetts, Missouri, and Washington over the last few years.‎ ‎  The alleged violations ‎included using unlicensed and unappointed producers, issuing unfiled policies, charging unfiled ‎rates, and paying inducements. This incident demonstrates how a single inquiry in one state can ‎trigger inquiries in several states for pet insurers when their activities are not in compliance with ‎state insurance law requirements.  These recent enforcement actions have regulators considering ‎what steps are needed to protect consumers and curb unlawful activities of pet insurers and pet ‎insurance producers.  ‎

Greater focus on regulatory concerns in the pet insurance industry should be expected as the ‎industry grows.  There was a 23.2% increase in premium volume in 2017 from 2016, whereas ‎there was only a 4.7% increase over the same time period for the P/C industry as a whole.‎ ‎  ‎According to the North American Pet Health Insurance Association, the pet insurance industry ‎had a total premium volume of $1.42 billion dollars in 2018.‎ ‎   Over the same time period, 2.43 ‎million pets were insured in North America including 2.16 million pets in the U.S. representing an ‎‎18% increase.‎ ‎  The potential for insurers and producers to look to pet insurance as an area of ‎growth is likely to fuel the demand for new regulatory requirements to ensure fair play in the pet ‎insurance industry especially since pet insurance is a somewhat unique product.‎

NAIC White Paper Identifies Regulatory Concerns
One of the biggest challenges for regulators in getting a handle on pet insurance is that data ‎relating to pet insurance is not reported separately from other types of coverage.  For example, ‎while pet insurance is predominately accident and health insurance, or accident-only insurance, ‎for pets, it is classified as property and casualty insurance.  It is reported on line 9 of the NAIC ‎property and casualty annual financial statement which is inland marine.‎ ‎  Because the bulk of ‎pet insurance premium is reported together with other inland marine coverage, it is difficult for ‎regulators to determine the exact premium volume for pet insurance.  Further, pet insurance is not ‎separately identified in most state complaint databases which presents an obstacle to tracking ‎trends in consumer complaints relating to pet insurance.‎ ‎  The inability to analyze data isolated to ‎pet insurance industry makes it more difficult for regulators to understand the current state of the ‎pet insurance industry.‎

The recent enforcement actions and a lack of clear data prompted the NAIC to develop a white ‎paper to help regulators understand the unique nature of the pet insurance industry and the ‎potential regulatory pit falls.  The white paper identified these common regulatory concerns: ‎

• Frequent Use of Brand Names In Marketing Pet Insurance: Pet insurers’ use of brand ‎names imply that the branding company is an insurance company, which creates confusion for ‎consumers, agency employees, TPAs, partners such as veterinary clinics and hospitals as ‎well as regulators.  Such practices, including failing to prominently identify the ‎underwriter, are ripe for violations under a state’s unfair trade practices act;‎
• Use of Unlicensed Producers to Market and Sell Pet Insurance: Pet insurers often use ‎producers which are licensed but such producers use unlicensed, unappointed call center ‎employees.  Further, pet insurers often partner with unlicensed veterinary clinics and their ‎staffs to market pet insurance.  Their activities often cross the line into licensable activities ‎in violation of state producer licensing laws; ‎
• Use of Unfiled or Unapproved Policy Forms:  Some of the branding entities used by pet ‎insurers to sell their products are using unfiled policy language and rates.  Additional ‎concerns have been express by regulators about “premium waivers, unfiled discounts, and ‎satisfaction guarantees” and pre-dispute arbitration clauses: and
• Insufficient Consumer Disclosures:  In marketing the pet insurance policies, there is ‎frequently insufficient disclosure with respect to pre-existing conditions, congenital ‎conditions, exclusions, and annual and lifetime limits.‎ 

Development of a Model Pet Insurance Law
As a result of identification of these concerns, a decision was made by the NAIC to move ‎forward with development of a Model Pet Insurance Law that would  “define a regulatory ‎structure for pet insurance to address issues such as: producer licensing; policy terms; coverages, ‎claims handling; premium taxes; disclosures; arbitration and preexisting conditions.”‎ ‎  California ‎is the only state which currently has a comprehensive pet insurance law.‎ ‎  It likely will be held ‎up as starting point for drafting a Model Pet Insurance Law.‎

While a Model Pet Insurance Law will take some time to be developed and adopted by the ‎NAIC, and even more time for state specific laws to be adopted by individual states, pet insurers ‎and producers would be wise to recognize that certain practices in the pet insurance industry are ‎on regulators’ radar.  Current laws such as unfair trade practices act, licensing laws, anti-‎inducement and anti-rebate laws, and rate and form filing laws provide fertile ground for ‎regulators to address questionable activities of pet insurers.  Future requirements that flow from ‎the development of a Model Pet Insurance Law and continued growth in the industry will only ‎increase the onus on pet insurers to up their game in the compliance department.‎

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1 National Association of Insurance Commissioners Executive Committee and Plenary, Draft (9/4/2019) Meeting ‎Minutes of August 6, 2019, p. 6. ‎
2 National Association of Insurance Commissioners, A Regulator’s Guide To Pet Insurance, p. 34 (adopted on ‎August 6, 2019 by NAIC Executive Committee and Plenary). ‎
3 Id.‎
4 See e.g., News Release, Washington Office of the Insurance Commissioner, Kriedler Fines Trupanion $100,000 ‎for Using Unlicensed Sales Partners (June 25, 2019), found HERE; Kansas Department of Insurance Consent Agreement and Final Order, In ‎the Matter of American Pet Insurance Company, Docket #77685-CO, June 10, 2019; Maine Department of ‎Professional and Financial Regulation Bureau of Insurance Consent Agreement and Order, In Re American Pet ‎Insurance Company, Docket # INS-18-223, January 2, 2019; Missouri Department of Insurance, Financial ‎Institutions and Professional Registration Order of the Director, In Re American Pet Insurance Company, Market ‎Conduct Investigation No. 14002-PC, October 26, 2018; and News Release, Washington Office of the Insurance ‎Commissioner, Kriedler Fines American Pet Insurance $150,000 for Multiple Violations (August 11, 2016), found HERE.
5 National Association of Insurance Commissioners, A Regulator’s Guide To Pet Insurance, p. 4 (adopted on ‎August 6, 2019 by NAIC Executive Committee and Plenary).‎
6 News Release, North American Pet Health Insurance Association, NAPHIA Announces Pet Insurance Market ‎Reaches $1.42B in North America (June 11, 2019), found HERE.
7 Id.‎
8 Sarah Juliff, Pet Insurance: Fido’s Risk Management Options, NAIC CIPR Newsletter, October 2014.‎
9 National Association of Insurance Commissioners, A Regulator’s Guide To Pet Insurance, p. 31 (adopted on ‎August 6, 2019 by NAIC Executive Committee and Plenary).‎
10 Id. at 34-37.‎
11 National Association of Insurance Commissioners Executive Committee and Plenary, Draft (9/4/2019) Meeting ‎Minutes of August 6, 2019, p. 3 and 7.‎
12 National Association of Insurance Commissioners, A Regulator’s Guide To Pet Insurance, p. 9 (adopted on ‎August 6, 2019 by NAIC Executive Committee and Plenary).‎