The History of Pet Insurance in the US
Pet insurance appeared in the United States in 1982 when Veterinary Pet Insurance (VPI) sold its first pet health insurance policy to television's most famous dog, Lassie. VPI was launched by a consortium of over 700 veterinarians headed up by veterinarian Dr. Jack Stephens who wanted to reduce the amount of "economic euthanasia" as he coined it: pets being put down because of the high cost of veterinary care.
For most of VPI's history, the company dominated the pet insurance industry by being the only company to survive the early struggles of a product that came before its time. Other companies saw the success of pet insurance in the UK and many business plans were built around the potential of pet insurance in the US. When these companies began selling policies though, they often closed down one or two years later from lack of sales. These companies tried hard to connect with pet owners but pet owners were not inspired by what they saw.
For example, Fireman's Fund closed down its pet insurance division in early 1994 after having written only 7,000 policies in three years. Fireman's Fund claimed they closed due to the difficulty in educating potential customers about pet insurance.
VPI itself faced many challenges over the years. Due to the difficulty reaching US pet owners on a small marketing budget in a pre-internet world, VPI struggled to make a profit, even with their founder's strong ties to veterinarians, and in 1991 the California insurance commissioner seized the company for violating capital and surplus requirements.
Several VPI investors, such as Ralston Purina and Veterinary Centers of America, came and went over the next few years. In 1998 Scottsdale Insurance stepped in with a major investment and has remained a committed partner to VPI, becoming the company's majority owner. Procter & Gamble has also invested in VPI through its Iams subsidiary in 2003, showing the draw of pet insurance for companies successful in other areas of the pet market.
Towards the end of the 90s, two new companies finally managed to get a toehold in the market. Pet Protect, founded by Rhona Sutter, an ex-Lloyd's broker from the UK, launched in 1997 with a very straightforward product and a low key approach to marketing. The Hartville Group, led by Russell Smith III, an investment banker, launched at the end of 1997 under the Petshealth Care brand but pushed forward with more of a splash, using the cartoon character Garfield in its marketing and advertising campaigns.
The Hartville Group also introduced routine care coverage such as vaccinations and annual visits, something new to the US pet insurance market. Shortly thereafter, VPI launched its own routine care add-on and the pet insurance market started to pick up. In 2001, PetHealth, founded by Mark Warren, another investment banker, launched in the US under the PetCare, ShelterCare, and Union Plus brands.
Around the start of the millennium, the pet insurance market picked up speed to grow at around 40 to 50% a year, although from a very small starting point, reaching written premium of $120 million in 2004, up from just $15 million in 1998. Even with this growth, all the companies had their ups and downs trying to balance claims
payments and expenses with revenue.
Pet Protect finally closed its doors in 2006 after not increasing its premiums since inception. The Hartville Group and VPI both brought in new insurance-focused management in 2004 and 2005 to reposition the companies and drive new growth. PetHealth continued to draw on outside investment to continue operations.
In the last few years, several new companies have entered the market lured by a market that is beginning to show some promise. Pet Partners arrived in 2003 under the AKC Pet Healthcare Plan brand and Pet First and Pets Best (launched by Dr. Jack Stephens, VPI's ex-CEO) launched in 2005. Subsequently, Petplan USA and Embrace Pet Insurance entered the market by the end of 2006.
The Future of Pet Insurance
The current state of the market is heating up with the larger pet insurance companies beginning to hit their stride. Most participants in the market agree that more pet insurance companies will raise awareness of pet insurance among pet parents by virtue of their combined marketing. The number of insured cats and dogs in the US (approximately 520,000 as of 2006), is still small compared to 140 million or more cats and dogs in the US and there is room for all to grow.
You can expect to see more companies enter the market over the next few years and some acquisitions by larger insurance companies interested in diversifying their revenues from one of the fastest-growing personal lines in insurance.
How Many Pet Insurance Companies Have Gone Under?
An enduring myth of the pet insurance industry is that over the years dozens of companies have come into existence only to just as quickly go out of business. But in this case the facts about the industry say otherwise.
Through careful research, we have identified the following pet insurance programs as having launched and then shut up shop over the last 25 years:
- Frontier Insurance (started 1982, closed 1988)
- VMS (started 1985, closed 1988)
- Medipet (started 1990, closed 1994)
- Pet Protect (started 1997, closed 2006)
- Premier Pet Insurance (started 1999, closed 2003)
- Midwest Pet Insurance (started 2000, closed 2003)
- BluePaws Pet Insurance (started 2000, closed 2001)
It is important to note that most pet insurance policies are sold today through agencies of the underwriting insurance company. All the pet insurance companies on the market today are actually pet insurance agencies. Several pet insurance agencies closed after 9/11 because the insurance companies that underwrote them were keen to exit businesses that they didn't understand well. But the insurance companies themselves stayed in business, they just chose to not sell pet insurance through these specialist agencies.
One area that could contribute to the impression that many pet insurance companies have come and gone is the appearance of veterinary discount programs. Many pet discount programs have risen only to disappear soon after, such as Hawaii Pet Care Alliance and American Pet Health Plans. These discount plans typically offer pet parents a substantial discount from a network of participating veterinarians in exchange for an annual fee; however, pet owners have generally resisted programs that force them to go to particular veterinarians, even for a discount, and veterinarians have been reluctant to sign up with these groups. While pet discount programs may help manage veterinary costs, these organizations do not offer insurance plans that protect pet owners against unexpected risks and should not be pooled with pet insurance company statistics.