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The Rise and Rise of Pet Insurance
by Dr Greg Moakes

Unexpected vet fees, third party liability, holiday cancellation fees: just some of the many phrases currently sprawled throughout pet media in the hope that the modern day pet owner will take the plunge into the unfamiliar world of pet insurance. Investing in anything so unfamiliar is daunting to say the least, and many of us ask understandably “can we afford to take out a policy?” The answer put quite simply, “can we afford to not?” Some simple mathematics should explain why:

A comprehensive “high end” dog insurance policy costs around £150 per year, allowing for inflation, make that £300 per year. Fifteen years would be an above average lifetime for a dog. This means the owner pays £4500 for a lifetime of insurance. To put this into perspective, major treatment for dogs and cats can cost anywhere up to £4000 and that is for a single operation.

Let us not forget other vet bills for smaller ailments incurred by otherwise healthy pets: something as routine as treating your dog for an eye infection can cost upwards of £100. All of this considered, continuing with yet another rant on the necessity of pet insurance would be tantamount to preaching to the fully comprehensively covered choir.

Hanging up the phone with your postman-botherer now fully insured, the business of pet insurance may still seem puzzling. It has hit us and taken our credit card details before anyone has stopped to take breath. Everyone from the man who owns the chip shop to the hair salon down the road is suddenly selling pet insurance. Where did this steam-rolling phenomenon come from? Where is it going?

Having been around since 1947, pet insurance is no new venture. Policies were first offered to breeders of pedigree dogs by the company Dog Breeders Insurance (the modern day DBI). Mainstream pet insurance was introduced to the UK market in 1976, with the formation of the company Petplan. Petplan revolutionized the industry by offering insurance to both pedigree and crossbreed dogs, and even cats. Until the mid-nineties, Petplan and DBI along with Pet Protect (established in 1986) dominated the industry.

In the mid-to-late-nineties, many large insurers entered the market. Realizing the potential for market penetration, they began to offer pet insurance policies to compliment their standard home and motor policies. As a result, the more established insurers such as Petplan and DBI still have the market share, but more traditionally known insurance companies such as DirectLine are working hard to catch up.

The actual number of pet insurers in the UK is fast approaching one hundred and increasing rapidly. Amongst these companies are unlikely candidates you would more closely associate with selling you bread and milk that pet insurance: supermarket chains such as Asda, Sainsburys and Tesco all have competitive pet insurance policies. So over half a century pet insurance has developed from a one-man race to a fiercely competitive market worth £162 million.

The number of providers in no bad thing for the pet owner, it keeps premiums down through competition, and encourages companies to offer all kinds of pocket friendly offers to increase the likelihood of purchase. What is it that motivates these companies, many of which have nothing in common (take, for example, Tesco and Argos) to sell pet insurance of all things? There are many answers.

In the UK at present, 12% of dogs and 7% of cats are insured, giving a combined number of 1.8 million policies. There are 6.5 million dogs and 8 million cats in Britain, so it doesn’t take a mathematician to figure out that MDs of the company that insures the remaining 12.7 million British pets will all be enjoying early retirement!

As unrealistic as this is, the figures illustrate that the bulk of policies are yet to be sold, so any bidding company has a legitimate shot at being market leader.

Over 80% of the pet insurance market may be up for grabs, but is this necessarily exciting? After all, pet insurance has been available since 1947 in one form or another, so if it has taken over half a century to get one in ten pet owners to insure, why is now any different? This is a very easy question to answer. In the UK, we love our animals; we regard them as members of the family and will go to great financial lengths to avoid the utter worst-case scenario of putting them to sleep.

Veterinary medicine is finally catching up with the medical profession, for example, 25 years ago a hip replacement for a dog was unheard of, now it is commonplace.

It is now much more likely for a pet to die of old age, but while this progress is priceless for pet lovers, it does come with a cost! The cost is that veterinary inflation is increasing at approximately 11% per year, to the point that unexpected vet bills are running at around £250 per year per pet. Things have reached the frustrating point where veterinary science can prevent a pet from dying, but the wallet of its owner cannot.

Any company that enjoys the most tenuous of links to the pet industry has decided to sell insurance; everyone wants to be this undecided market leader. This seems like such a difficult competition. How many times have you been browsing pet websites only to be visually attacked by pop-up screens from pet insurance company x, y and z? All of them offering polices undistinguishable to the naked eye. It is difficult for you to distinguish and its difficult for them to be distinguished.

That is the ultimate goal for any company in this market; to set them apart in a way that will ultimately lead to the purchase of their policy. The most obvious way to do this is to exploit what core capabilities the company already has. Take supermarkets for example, it seems very strange that pet insurance is available under the same roof as bread, milk and sugar, but it really makes a lot of sense. Supermarkets have the distinct advantage of being able to use product placement. Not every pet owner in Britain has the luxury of Internet access, and therefore insurers cannot reach everyone via the dreaded pop-up windows.

Supermarkets however, sell dog and cat food to millions of owners on a weekly basis, what better example of clever marketing than decorating the pet food aisle with banners and brochures advertising pet insurance? Supermarkets also take advantage of the fact that many hard working pet owners are very interested in buying a policy, but simply cannot find the time.

The excuse is completely removed in this case, because everybody needs to shop, supermarkets have a captive audience to advertise to! Last but not least, supermarkets rely heavily on brand strength; the family that loyally shops at Tesco loyally buys their pet insurance at Tesco. Supermarkets are not the only companies utilising their position to sell insurance. Reputable insurers such as Directline are able to make pet insurance attractive by creating incredibly convenient package insurance deals that include home, motor and pet insurance. There is an element of brand loyalty here too; the customer that has always insured with Cornhill will no doubt choose them when it comes to insuring his new cat for example.

What about reputable, independent pet insurers such as Petplan, how do such businesses stay afloat in times of heavy competition? Well, don’t forget that to most pet owners, low cost and clever marketing are low on the list of priorities, and many associate “stand-alone” pet insurers with empathetic customer service. It is natural to think that such a specialist insurer will be more in tune with the needs of the modern day pet owner, and many owners will assume that their desired quality of insurance can only come from a pet-specific company.

Impressing this kind of customer is critical if the likes of Petplan wish to continue holding a market share.
Learning about the pet insurance Industry is all very well, but why should the pet owner really take an interest in the market?

The answer is very straightforward; the condition of the pet insurance sector determines what the pet owner pays. The insurance industry is unique in that the more consumerism increases, the higher the price of the product will be. The more that people shop at a particular supermarket, the lower their prices will be.

Not so in the insurance industry. If there is an increase in the sale of policies taken out, more claims are made, and pet insurance is already the most frequently claimed insurance, more so than automobile and home insurance. Policies therefore inflate to match the increase in claims met by the company.

We can therefore expect premiums to rise, to match increasing consumerism and also to keep up with the 11% per year veterinary fee inflation. Rest assured however, because when K9 magazine spoke to Pet plan recently, we were assured by a spokesperson that premiums will never reach the level where it is no longer economical to insure a pet.

As a final thought on the future of the pet insurance industry, K9 magazine has recently been made aware of a pet insurance company who operate solely as a charity. The UK's first pet insurance policy which donates 100% of its net profits
to animal welfare charities has been launched with market-leading premiums by Animal Friends Insurance.

An interesting statistic is that if all of the 1.13 million cats and dogs currently insured in the UK were covered by the Animal Friends Insurance (AFI) policies, there would be enough money to adopt or re-house all of the 117,500 stray dogs that currently live rough in Britain.

This truly is the policy that Dogs and Cats would buy if they had the choice! Many leading pet insurance are using services like pet bereavement counselors to make their policies more attractive, but with a policy from a charity insurer pulling on the heart-strings of compassionate pet owners, leading pet insurers may have to totally rethink their strategies. If they are to remain competitive, that is.

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