A closer look at the NAIC's Pet Insurance Model Act
Insurance regulators recognized the growing need for more standard and comprehensive pet insurance guidelines.
Americans love their animals and spend billions a year on toys, food and veterinarian expenses.
Medical costs for pets can be as expensive as medical costs for humans, but until recently there was no such thing as pet insurance.
Although pet insurance can be traced as far back as 1890 in Sweden when insurance was available for livestock and horses, it wasn’t until 1982 when the first pet insurance policy was available in the United States.
Since then the pet insurance industry has exploded. The North American Pet Health Insurance Association (NAPHIA) states that the industry exceeded $2.83 billion at the end of 2021, and that the industry has more than doubled between 2018 and 2021. They indicate that over 4.41 million pets are currently insured across North America.
In light of this explosive growth of a relatively new insurance product, the National Association of Insurance Commissioners (NAIC) recognized the growing need for more standard and comprehensive pet insurance regulations. To that end, the NAIC developed the 2022 Pet Insurance Model Act . What follows is an analysis of the model act, which states are encouraged to adopt.
What’s covered in the model act?
The NAIC 2022 Pet Insurance Model Act includes detailed coverage definitions, disclosures, policy conditions, sales for wellness programs, best practices for insurance producer training, related regulations and violations.
The NAIC developed the act in order to create a more comprehensive and level playing field for the sale, purchase and policy provisions of pet insurance. Because pet insurance is relatively new and previously did not have many standards on the books outside of general insurance laws in most states, this act will help serve the public interest through standardization of the product.
The act sets forth specific requirements that apply to pet insurance policies sold in a state that adopts the act in full or parts of it regarding how the product may be sold, solicited, negotiated or offered in the state. In addition it sets forth the standards that the policies or certificates of insurance that are sold or issued for delivery in the state must comply with. While many states adopt NAIC model acts in full, many states also use only portions of the model act or develop their own similar provisions.
What this does is to standardize these processes in the state and give regulators the tools to make sure that companies and agents offering pet insurance comply with the standards set forth in the Model Act and State Insurance Code.
Why include definitions?
This section of the model act sets forth the requirements for definitions in the policies that insurers must use for the following terms. In addition the insurer must make the definitions clearly available via a link on the insurer’s or pet insurance program administrator’s website(s).
The act does not limit or prohibit the types limitations or exclusions an insurer may use in their policies. Insurers may include limitations such as yearly or lifetime limits, and may exclude for example veterinary services rendered outside of the United States. The insurer is also not required to have any of the limitations or exclusions defined in this section.
A number of definitions are presented; note that some conditions may fit more than one medical definition. A condition can be both “chronic” and a “hereditary disorder,” for example, or “chronic” and “orthopedic.”
The definition of “chronic condition” is straightforward. It is something recurrent, but manageable. For example, a cat or dog with allergies that requires a special diet. The allergies can be treated and managed by feeding the pet a specific diet; however, the specific diet will not cure the underlying condition which is an allergy to certain allergens. Asthma or diabetes in cats and dogs is also considered a chronic condition that can be treated but not cured.
“Congenital anomaly or disorder” is a condition present from birth that contributes or causes illness or disease. English Bulldogs or other short-nosed dog breeds such as Pugs often develop Brachycephalic Syndrome which is the result of selective breeding that gives these dogs their smooshed face look but causes severe respiratory abnormalities. These abnormalities restrict these breeds’ ability to breathe to the point that even slight exercise on a hot day can bring about breathing difficulties that can even lead to death. Some congenital anomalies can be treated with surgery or exercise of care, such as preventing disk disease in Dachshunds by restricting their climbing and jumping from an early age. Others like dilated cardiomyopathy in breeds like Boxers and Great Danes is a disease where the heart muscle decreases over time and for which preventive testing is not available and must be screened for annually.
A “Hereditary disorder” is handed down from parent to offspring; allergies are the most common “hereditary disorder”, and as mentioned earlier can also be considered chronic. Some of the most common hereditary diseases in dogs after allergies are hip and elbow dysplasia, inherited cancers such as lymphoma, and mast cell cancer, non struvite bladder stones, mitral valve disease, inflammatory bowel disease and other conditions. Cats are susceptible to deafness, feline lower urinary tract disease (FLUTD), and polycystic renal atrophy.
Unlike human health insurance post-Affordable Care Act, pet insurance still allows for “preexisting conditions” to be excluded or subject to a waiting period prior to any coverage being available for that condition. Examples of pre-existing conditions are a dog receiving treatment for experiencing bladder symptoms such as wetting the floor before the effective date of the insurance policy. Or, the same dog had surgery for bladder stones prior to the effective date of the policy. Both of these instances would be considered preexisting, and the pet insurer could either decline to provide coverage for the condition, or invoke a waiting period prior to covering claims for that particular condition.
A number of other relevant definitions are outlined in the NAIC 2022 Pet Insurance Model Act.
How are wellness programs addressed?
The model act sets forth parameters for the sales practices allowable for Wellness Programs for both the insurer and the producers in the state. Wellness programs are not permitted to be marketed as pet insurance. They cannot be marketed during the sales, solicitation or negotiation of a pet insurance policy. Because Pet Wellness Programs are either stand-alone or supplemental plans, they cannot be included as an inducement to purchase a pet insurance policy, nor included during the sales or underwriting process when a consumer is seeking or obtaining pet insurance. For example: An insurer or producer cannot say something along the lines of “Keep Fido and Fluffy happy, buy an Animal Insurers United Pet Policy and we will throw in access to our Happy Pet Wellness Program for a small monthly fee.”
Pet Wellness plans differentiate from pet insurance in that wellness plans cover the routine expenses that pet owners are expected to incur in order to keep a pet healthy. A Pet Wellness Plan is one that is a supplemental or stand-alone product that is not providing insurance coverage, but rather provides wellness benefits and services at a discounted or set price. Such policies cannot be sold as if they are the actual accident or health insurance for pets.
For example, veterinary clinic may have their own pet wellness plan that provides a package of discounts for services such as yearly vaccinations, heartworm and other preventative medications, boarding and grooming, and an annual wellness visit. Pet insurance on the other hand covers the unexpected expenses such as accidents and illnesses that cannot be predicted, such as accidents or illnesses, but can also incorporate wellness benefits provided they are made part of the policy and follow state insurance laws and regulations.
In general, the model acts clearly differentiates between a wellness program and pet insurance, and set the parameters by which a wellness program can be marketed and advertised along with disclosure requirements.
What should agents and brokers know?
Training and licensing of producers is required within the insurance industry, and pet insurance is no different. Section 7 of the model act spells out the licensing requirements for producers who sell pet insurance, and the topics that must be included in that training required for licensing. The act also allows for those individuals who have completed the licensing in other states that are substantially similar are deemed to have completed the training requirements in the state covered by this act. Many states have reciprocity for producers when training requirements are similar; the same is allowable here.
Visit FC&S Expert Coverage Interpretation for a more detailed analysis of the NAIC’s Pet Insurance Model Act that includes specific citations from the document.
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