It’s been a very challenging environment for pet insurance for the past ten years. Everyone is pulling in different directions – from the insurance companies to vets and pet owners – but what we really need is an alignment and more open discussion. As both a vet and an insurer I can see both sides of this situation and firmly believe that we’re all in it together and therefore need to work together.
Consumers are confused about pet insurance and it’s often hard to demonstrate value for money. It’s difficult for pet owners to understand the differences in the various insurance products on offer and, as a consequence, complaints to the ombudsman are on the increase.
In 2014, the pet insurance market grew by 13.3% to a record £985 million and it is expected to rise to £1.45 billion by 2019. So, on the surface, it looks like an attractive market to be in. However there was an increase in the cost of claims of 14.7% in 2014 and these are expected to rise by a staggering 46.7% between 2015 and 2019.
It is estimated that between 15% to 40% of pets are insured – I believe that figure to be more like 25% but currently static. Market growth is coming from premium rises, while a rise in claims costs has become a real issue for the industry and one that detracts from the opportunity represented by the 75% of pets who are not currently insured. This rise in claim costs has also led to a number of companies withdrawing from the market causing considerable disruption to pet owners, many of whom have found their so-called lifelong policies in jeopardy.
A key challenge for the industry is what I term, ‘value for money decoupling’. A pet owner taking out a premium insurance product can feel safe in the knowledge that they can provide the best possible care for their pet. While this is good for both animal welfare and for vet practices, would the same owner be willing and able to pay for the same level of care without the insurance? Insurers want to bring the value for money aspect back into the debate. It doesn’t mean that the pet owner can’t go to the best specialist consultant in the country, it just means that consideration should be given as to whether the pet owner would choose that particular consultant if they were paying the bill, or a part of the bill, themselves.
In order to counteract this value for money decoupling, insurance companies are looking at a number of different models from co-payment arrangements, which are standard practice in the US, to tighter terms & conditions and preferred networks. In addition, some of the corporate vet practice groups are developing their own insurance products and purchasing referral practices, while there has been the high profile example of RSA seeking to control costs by developing a network of approved practices that pet owners must use for non-emergency procedures. Such practices are standard across other sectors of the insurance industry and their introduction to the pet insurance market will undoubtedly be accepted by the regulatory authorities as long as there is total transparency to the consumer when they first purchase, or upon renewal of, the policy.
The average percentage of Vetsure claims from referral cases is approximately 10% by number but 20% by value. However, a key motivator for pet owners to take out insurance is because of the risk of having a referral case, so aiming a cost control strategy purely at referral practices is not necessarily the answer. Instead we need to question what are the real drivers of claim inflation? As Albert Einstein said, we cannot solve our problems with the same thinking we used when we created them.
At Vetsure we believe it is vital to get the price right in the first place – since we launched in 2009, our premiums have been determined by the prices charged by our accredited first opinion practices – this helps us to recouple cost of veterinary services to the cost of the insurance product. Vetsure work with both ‘super premium’ and ‘budget’ practices alike. Pet owners are not forced to use accredited practices – they can pay a nominal payment of £20 to use a practice of their own choosing. We do not do anything to influence the choice of referral centres made by our partnered practices. Our optional buying group services also help the business to offset periods of high claims costs. And, this approach is working – 94.8% of policy holders renewed their policies in 2015 and we are the highest rated insurer for both customer service and value for money on leading consumer review sites.
So what does the future hold? I believe we will see more co-payment models, preferred networks and other cost controlling strategies as insurers follow the lead of other sectors. These changes won’t be problematic as long as they are transparent to the consumer at the point of purchase. Vets need to become more involved in discussions with pet owners about the types of policies available and be aware of the cost to value proposition. This is a great opportunity for both the insurer and vet profession alike as long as it is handled appropriately.