US Pet Insurance Trends for 2010

Including predictions and outright speculation

Theme for 2010 – improving the customer experience

In 2009, we saw a distinct effort by US pet insurers to improve the experience a pet owner had with pet insurance. A number of companies introduced new product features, several companies upgraded their websites, and some enhanced the claims experience, all for the good of the customer and the industry as a whole.

I expect to see this trend continue in 2010 as customers demand more from their pet insurance companies and tell others of their experiences, and more and more pet owners become aware of pet insurance.

1. Year-over-year premium growth greater than 20% for 5 years

Market annualized premiums were approximately $330 million at the end of 2009, insuring 1 million pets. Premiums have grown from $122 million in 2004, indicating a very attractive 22% APR.

The growth of new policies sales was even more rapid since maturing books of business (i.e. aging pets) can expect drop off from death and cancellation of 20% or more. I expect this growth to continue, if not accelerate as more and more pet owners become aware of and accept pet insurance in their daily lives.

2. Customers control the product

Pet insurance products are finally catching up to the rest of the insurance world and allowing customers to make their own tradeoffs between benefits and premium. Customers like the flexibility and insurers like the risk segmentation and profitability that goes along with it. Newer companies such as Embrace Pet Insurance and Petplan USA introduced the customizable product in 2006 and Trupanion followed in 2008 with some variability; however, older pet insurers have lagged in this respect.

In 2009, the ASPCA added the choice to add continuing care to each fixed product and Pet First added optional hereditary coverage. Moving ahead to 2010, VPI's soon-to-be-released product allows the pet owner to choose amongst deductibles, showing a desire to refresh the look of the product, even if the core coverage is still the same as before.

3. Customers speak their minds

No longer do dissatisfied customers tell their 10 friends about their poor customer experiences. Instead, they tell every detail to their thousands of follows on their blogs, their Facebook pages, and on Twitter, and their audience is listening, even seeking out these experiences.

This is word of mouth at light speed and companies at the very least should be aware of what is being said about them online. The website has become the dominant review site for pet insurance and like the reviews or not, more and more customers are using the site to help them make purchase decisions. There are signs that the feedback is "encouraging" lagging companies to work on their customer experience, which is good for the company and the pet insurance industry as a whole.

4. Online customer service

Most companies websites have made great strides in upgrading the pet insurance purchase experience but only a few offer online services for existing customers. Pet First led the pack with its online portal but others such as the Hartville Group and Pets Best have added some functionality such as being able to change addresses and billing, as well as keep up with the claims process online. While this functionality may not sell more policies, it may help with the all important retention of existing policies. Keeping things simple and easy for the pet parent and reducing expensive incoming phone calls for the pet insurer will be the goal going forward.

5. The drive for partnerships

Given the success of the ASPCA partnership with the Hartville group, which has propelled Hartville to the number 2 position in the US, it’s no wonder that more and more partnerships are popping up. Trupanion took over the Petco partnership and Pet First expanded the Kroger partnership in 2009. I expect we’ll see more partnerships forged in 2010 as ASPCA-envy continues and pet insurance gains more credibility with other businesses wanting to increase their revenues. Wal-Mart Pet Insurance anyone?

6. Pet owners to have greater awareness of pet insurance

Now that you are aware of pet insurance, don't you feel you see it everywhere? Well, you aren't wrong. 2008 and 2009 saw pet insurance on television (courtesy of VPI), and other companies like Petplan USA look like they might take the plunge in 2010.

You're also going to see pet insurance more in supermarkets, the internet (advertising, blogs, articles), news services, banking, physical locations of retail stores, and of course, more and more vet clinics.

While I don't expect we'll be seeing pet insurance during the Super Bowl, there'll be no escaping it everywhere else.

7. Premium increases

2010 will bring premium increases to reflect veterinary inflation. According to the US Bureau of Labor Statistics, veterinary inflation has averaged 6.8% a year for the last 5 years. For those who have not increased their premiums for several years (about half the companies), that's a lot of premium catch up and a big increase for existing customers to swallow. Unless handled carefully, existing customers could become very disgruntled with the increases and drop their policies. Not good for the companies involved and for the reputation of pet insurance as a whole.

8. Profitability or growth?

It's been a long time coming but in 2009, pet insurance companies are finally getting their financial act together with Pets Best and The Hartville Group joining Veterinary Pet Insurance and Pethealth as profitable companies. With a number of the other pet insurers relying on external funding, there's bound to be pressure to grow and reach break even before the money runs out.

Having said that, investors are smart enough to know that profitable growth for an insurance product means the present value of future profits is greater than the cost to get the policy in the door. They may be happy to finance profitable growth until the cows come home as long as the lifetime value of the book of business is making them a good return. As a result, I expect we'll see more private equity money enter the market to fund that profitable growth and cash out the early investors. Profitability versus growth? The verdict is still out on which one wins out in 2010.

9.Foreign forays

Pethealth, the pet insurer based in Canada but with a significant presence in the US under the 24PetWatch brand, entered the UK market by purchasing Pet Protect in 2008. UK pet owners are highly aware of pet insurance and if asked, most scratch their heads about the low profile pet insurance has in the US.

Canada too has seen more success with pet insurance than the US historically. Given its proximity and similar business environment to the US, it too might prove to be an attractive destination. Perhaps other US pet insurers will be tempted to extend their presence across the pond or up north? That's if the 170 million cats and dogs in the US don't prove enough to keep one focused on the home front, that is.

10. New pet insurance companies come to market

It's been very quiet on the western front in 2009 with no new companies following the entrance of Trupanion and PurinaCare in 2008. While there have been some stirrings of new companies coming, none have surfaced as a serious contender.

Finding a willing insurance partner has been the biggest barrier, although that has been lowered with the appearance in 2008 of the American Pet Insurance Company, the first insurance company focused purely on pets (owned by the Trupanion organization). Most people find out it takes much more than raising a few dollars and having the desire and enthusiasm to actually sell policies.

Background on pet insurance in the United States

Less than 1% of the 170 million cats and dogs in the US are insured compared to over 20% of British cats and dogs. The difference between the US and UK markets can be attributed to 2 things:

  • Brits don't dislike insurance as much as Americans (mainly thanks to universal health care taking the insurance logistics out of the equation), and
  • The first pet insurance products in the UK did what pet parents expected them to do, whereas the US products did not (e.g. hereditary conditions not covered).

Positive word of mouth among pet owners and veterinarians had a large role in pet insurance growth in the UK, which led to large companies with deep pockets ultimately taking over the pet insurance market.

The US market leader is Veterinary Pet Insurance (VPI), with approximately 61% of the market at the end of 2009, as shown in the table below. The rest of the market plays out as follows: Trupanion, PurinaCare, Petplan USA, and Embrace Pet Insurance.

Market Share of US Pet Insurance Companies 2009
1 Veterinary Pet Insurance 61%
2 Hartville Group 13%
3 PetHealth Inc. 13%
4 PetFirst 3%
5 Pets Best 3%
6 Pet Partners (AKC PHP) 3%
7 Remainder 3%