Protect your pup: How proposed model rules strengthen pet insurance protections

Welcome to Ask an Adviser, EBN's weekly column in which benefit brokers and advisers answer (anonymous) queries sent in by our readers. Looking for some expert advice? Please submit questions to askanadviser@arizent.com. This week, we asked Lauren Gubricky and John Vishneski of Reed Smith: How would proposed model rules beef up pet insurance protections?

Employers are increasingly offering a discounted rate on pet insurance as part of a robust benefits package for employees — and for good reason. Millennials are the largest generation represented in the labor force and some may be more inclined to raise pets than children. 

But the pet insurance industry has had a rocky start, at least for policyholders, due primarily to the claims process and unexpected coverage denials. A new law, which went into effect just last month, seeks to improve this product by beefing up protections for pet insurance policyholders. 

Read more: MetLife expands pet insurance benefits to include virtual vet visits

Consider the case of Gregory Allen, restaurant worker in Maryland, and his cat, Sir Purrs A Lot, who he adopted after losing his job due to the pandemic. The cat soon began exhibiting an "excessive grooming" disorder, which can cause sores and infections. Gregory thought he did the right thing by purchasing pet insurance for Sir Purrs A Lot, but was surprised when the insurer denied coverage for his vet bills on the basis that there was a two-week waiting period for coverage and that the cat's grooming disorder was a preexisting condition.

A similar situation happened with a California resident, Samantha Bonar, and her dog, Kaya, who survived cancer years ago and was recently diagnosed again. Samantha's pet insurer denied coverage for Kaya's treatment, saying that the cancer was a repeat of the first, despite the fact that Kaya's veterinarian said otherwise. After a lot of back and forth, the insurer finally agreed to cover Kaya's cancer treatment. 

The National Association of Insurance Commission's Pet Insurance Model Act aims to remedy these situations. The law, adopted on August 1, 2022, is meant to protect pet owners by focusing on required disclosures, preexisting conditions and wellness programs.

Specifically, the new law requires that a pet insurer "shall disclose … if the policy excludes coverage due to … a preexisting condition," like Sir Purrs A Lot's grooming disorder, and whether there is a waiting period before any coverage kicks in. Importantly, it expressly states that the pet insurer "has the burden of proving that the preexisting condition exclusion applies" when it denies coverage. This could have prevented Samantha's situation, where Samantha herself bore the burden of proving that her dog's cancer was unrelated to the first cancer.  

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The law also requires that insurers clearly explain how a claim will be paid.  For example, whether costs are reimbursed based on a benefits schedule or "usual and customary fees," which can mean lower reimbursement rates because it is not based on what pet owners actually paid their veterinarian. Lastly, it provides that the purchase of a wellness program (which covers preventative care) "shall not be a requirement to the purchase of pet insurance," which should make coverage less expensive. 

As a model law, individual states must choose to adopt it before pet insurers have to comply. However, when states inevitably adopt it or some version of it, pet owners — as long as they read their policy — should better understand their coverage and how it applies to their sick or injured pet.