Regulatory standards on pet health insurance being developed

The Pet Insurance Working Group of the National Association of Insurance Commissioners is working on a model law on pet health insurance. The new model law will likely impact the pet insurance industry, depending on whether and how states adopt the model law, and may also change how veterinarians discuss pet insurance with clients. The NAIC working group is currently developing the draft model and likely won’t release the final version to the public until late this year.

Ray Farmer, NAIC president and South Carolina Department of Insurance director, said the pet insurance industry is an emerging one. A white paper (PDF) released in 2019 by the NAIC sparked the formation of the working group and the drafting of a model law to address regulatory issues.

“The goal of the model law is to establish clear rules for the sale of pet insurance and provide important disclosures to pet owners purchasing this product,” Farmer said. “States would have to adopt the model law for this regulatory framework to apply to the industry in their state.”

States do not have to adopt the model law and, even if they do, can decide to adopt only portions of the model law in their statewide statutes.

Lay of the land

The pet insurance industry currently comprises about 20 companies across the United States and Canada, according to the 2020 State of the Industry Report from the North American Pet Health Insurance Association. The report, compiled by actuarial consultants at Willis Towers Watson, provides insights into key industry metrics. For example, there were nearly 2.82 million dogs and cats insured at the end of 2019 in the U.S. and Canada, an increase of about 19% from the previous year. In the U.S., over 2 million dogs and about 419,000 cats were insured in 2019, which represents about 1.7% of owned dogs and cats in the U.S., according to NAPHIA.

Currently, regulation of pet health insurance varies widely by state. For example, in California, a law passed in 2015 requires policies to contain clear language on coverage limits, waiting periods, deductibles, and lifetime limits.

Rick Faucher, president of NAPHIA, said there are some similarities in laws state to state right now but no uniformity. The model law could change that. However, Faucher said he doesn’t foresee it significantly impacting the day-to-day business of veterinarians.

“There is not going to be a wholesale change facing veterinarians,” he said. “But I think there will be better access to pet insurance. What may happen is (a change in) how far veterinarians can go in recommending pet insurance without being a licensed pet insurance agent.”

Pet insurance is a growing market with continued potential to increase spending specifically on veterinary services. A survey of dog owners, performed by individuals from the AVMA and other institutions and published in the journal Animals in 2020, found that the presence of pet insurance had a positive association with spending at the veterinarian.

Also, a study released in December 2020 from Crum and Forster Pet Insurance Group, home of the ASPCA Pet Health Insurance program, shows gross revenue increased and clients were more satisfied with their experience when they had pet insurance.

Dr. Wendy Hauser, associate vice president of veterinary relations at the insurance company, said, “Overall, the benefits obtained by hospitals that embraced having proactive pet insurance education conversation with clients are strongly positive.”

AVMA involvement

The AVMA has been closely involved in the working group and the group’s drafting of the model law by suggesting, for example, a definition of “preexisting condition” and participating in discussions about whether a veterinary team member would need to be trained by an insurance company to discuss products with clients.

Isham R. Jones III, general counsel for the AVMA, said the Association is closely monitoring and heavily involved in the working group’s process.

“The AVMA recognizes the importance of pet health insurance and the role of veterinarians and clinical staff in providing valuable information for clients about this resource,” according to a public comment from the AVMA to the Pet Insurance Working Group. “For these reasons, the AVMA wants to ensure that veterinary teams can continue to discuss the availability of pet insurance with their clients while minimizing any regulatory impact that may chill such discussions. Any obstacles to discussing pet insurance with our clients would likely have an overall negative impact on animal health care.”

The working group is still drafting the model law, and conversations related to how the law could change the way insurance can be discussed in a veterinary clinic were ongoing as of press time in late December.

“We don’t know what it will look like,” Jones said.

Looking ahead

One of the goals of the working group is in fact to figure out what veterinary team members are allowed to discuss with pet owners regarding pet insurance without being licensed to sell insurance.

“People often hear about pet insurance from their veterinarian,” Faucher said. “Generally, they don’t recommend specific companies, but there may be some opportunities to have better, engaging conversations. So, the model law is trying to standardize the approach of suggesting pet insurance and what is permitted without an insurance license. How can a veterinary practice engage pet owners about insurance, and how far can it go?”

Faucher said, additionally, he hopes the model law increases the number of pet owners who have pet health insurance, with the hope that this would also decrease economic euthanasia.

“This is first and foremost in our minds,” he said. “No one wants to have those price-based negotiations around treatment and care. We start bargaining with the health of our pet versus budget. Insurance wants to solve that problem for the consumer so we can improve the quality of life and conditions of our pets. We want to remove the economic burden to decisions around care.

“We are aligned with veterinarians because of that aligned goal: We want to do what is best for the pet owner and the patients. There is a guiding purpose here, and it is to do good.”