Pet Insurance: A Market with Opportunity

Over the last few years, pet insurance has gained popularity as a workplace benefit. A recent survey by the Society for Human Resource Management found that 15% of employers offer pet insurance as a benefit. Furthermore, some large insurance companies are starting to offer pet care policies on the individual market.

According to the North American Pet Health Insurance Association (NAPHIA), 3.45 million pets were insured in 2020, which was about a 23% increase in the number of pets insured the year before. In 2021, the US pet insurance market was valued at $8.3 billion, but it’s projected to compound at an annual growth rate of 16.7% for the next seven years, reaching $32.7 billion by 2030.

• Much of the recent demand for pet insurance emerged in response to the pandemic, when Americans started adopting more pets due to:
• The proliferation of people working from home, leading to longing for companionship
• Enhanced “humanization” of pets, wherein they are treated like a family member
• Increased discretionary income, as the pandemic limited other expenditures
•  An increase in the companion animal population
• More awareness about the availability of pet insurance

There are also key growth factors related to the veterinary industry itself. For example, vet services have become more sophisticated (and costly), requiring specifically designed diagnostic equipment, skilled technicians, veterinarians with specialized niche expertise, and more animal healthcare facilities. Given the ability to offer more precise diagnoses, it reasonably follows that more treatment options are available than in the past. New surgical procedures and medications subsequently run up the cost of pet care, which has more people considering pet insurance to help defray the cost.

Coverage Options

The typical pet insurance policy offers accident and illness coverage. In addition to injuries, most plans offer coverage for diagnostic tests, medications, and acute and chronic diseases. However, some policies may carve out exemptions for certain pre-existing conditions, which is why it’s important to begin coverage when the pet is young. However, in some cases in which an injury or illness is cured and free of treatment and symptoms for six months, it may cease to be considered pre-existing.

Three different types of policies are offered: Coverage for dogs, cats, and “other animals”. Premiums for canine policies are generally higher due to the higher cost of care and greater chance of accidents. By the same token, dog policies represent the majority of the pet insurance market. Policies also may be priced higher for specific breeds or more exotic pets.

Be aware that pet insurance works differently than most human health insurance plans. These days, most health plan providers issue claims and receive payment directly from the insurance company. Any remaining balance is billed to the patient. Pet insurance, however, follows a reimbursement model. The pet owner must be prepared to pay for the entire bill at the time that services are rendered. He is then responsible for filing a claim with receipts, and the pet insurer determines the amount it will reimburse based on policy terms.

Standardizing Benefits

Obviously, pet insurance is not as highly regulated as the people health insurance industry. However, there is a need to standardize policies and coverage options nationwide before the industry grows unwieldy. A handful of states have been more proactive than others at setting regulatory guidelines.

For example, California was the first state to establish pet insurance legislation. The law mandates that carriers disclose specific information related to claims reimbursement, pre-existing conditions exemptions, coinsurance requirements, wait periods, deductibles, and annual and lifetime policy limits.

While some individual states have issued guidance, there is currently an initiative for national regulatory recommendations in collaboration with pet insurers. In 2019, the National Association of Insurance Commissioners (NAIC) formed a task group to develop the Pet Insurance Model Act in order to standardize a framework for insurance components such as:  producer licensing, policy terms, claims handling, premium taxes, disclosures, and arbitration. While there is currently no national legislation, these efforts are underway to build a regulatory framework for countrywide standards. 

Why Buy Pet Insurance?

As a general rule, insurance is advised for goods and services which, if they must be paid for immediately, cost more than what most people can afford out-of-pocket. That includes our cars, our houses, our health – and now the health of our pets.

Veterinary services are becoming progressively more expensive because the quality of care they offer is continuously being enhanced. Once we enter the realm of healthcare costs reaching hundreds to thousands of dollars, it makes sense to consider the cost of monthly insurance premiums compared to potential out-of-pocket expenses. This can help pet owners avoid the horrendous decision of whether or not to pay for higher vet bills to keep their pet comfortable and alive.

The following are some tips for the best time to take advantage of pet insurance:

• When the pet is young (within its first year) – premiums are lower and the animal is less likely to already have a pre-existing condition.
• When the pet is first adopted, regardless of its age – that first year can be expensive due to exams, vaccines, medications, and follow-up appointments.
• The adoption of an exotic pet or high-maintenance breed – many purebreds are predisposed to certain conditions. Owners should research the medical history of the breed or animal to understand the health commitment they can expect.

 While it has taken awhile for pet insurance to take off, the first policy was introduced more than 30 years ago. Given the degree to which Americans have adopted pets as part of their families over the past few years, it appears the pet insurance market has a robust future ahead. As a company benefit, pet insurance offers a way for employers to show that they care about the same things their workers do.

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