Insurance Regulators Are Sniffing Around the Pet Insurance Industry

Locke Lord LLP

Locke Lord LLP

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.‎


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).‎

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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