U.S. pet insurance market is ripe with opportunity

While pet insurance penetration remains relatively low in the United States, the market has grown substantially over the last few years and will likely present new opportunities to insurers as it continues to mature.

Roughly 68% of U.S. households own a pet, but only around 2% have dedicated pet insurance, according to the National Association of Insurance Commissioners (NAIC). However, this is a market that is growing at a rapid pace, with double-digit growth for six consecutive years.

The North America Pet Health Insurance Association (NAPHIA) reports there are around 3.1 million pets were insured in the U.S. at the end of 2020, and that pet insurance has increased at an average annual growth rate of 24.2% over the last five years.

NAPHIA represents more than 99% of the U.S. and Canada pet-insurance industry. The organization suggested the U.S. pet insurance market is maturing with only a fraction of its potential realized, referencing the introduction of new products from large companies entering the market; ongoing discussions with government regulators to create a stronger regulatory framework for the industry; and a significant increase in the volume of claims being processed, in line with the increased numbers of insured pets, NAPHIA said.

Over the last few years, pet insurance has gained popularity as a workplace benefit. A survey carried out by the Society for Human Resource Management suggested that 15% of organizations are now offering pet insurance as an employee benefit. While it is encouraging to see so many pet-friendly companies support their employees’ pets, large insurance providers are progressively offering attractive stand-alone coverages as an alternative.

Veterinary treatments and diagnostics have also become more sophisticated in recent years, with more complicated — and expensive — procedures such as MRI scans now quite common. Severe medical problems or chronic conditions and the procedures involved can cost pet owners thousands of dollars’ worth of veterinary bills, which is making pet insurance increasingly more attractive to the consumer.

Finding common ground

Some states have addressed pet insurance at a faster rate than others from a regulatory perspective. For consumers, sometimes it can be difficult to understand how policies, definitions, and other rules and protections can differ from state to state.

As of 2019, California was the only state with a specific pet insurance law, to generally require pet insurers to disclose baseline information regarding reimbursement benefits, pre-existing condition limitations, along with explanations of limitations around coinsurance, waiting periods, deductibles, and annual or lifetime policy limits, according to the NAIC.

However, a collaborative effort among regulators and industry bodies is currently underway to bring more uniformity to how pet insurance is provided and to encourage consumer-friendly policies.

In April 2019, the National Association of Insurance Commissioners (NAIC) formed a working group to develop a model act to help build a stronger regulatory framework for pet insurance across the U.S.

The Pet Insurance Model Act is being developed as guidance for a uniform regulatory framework for pet insurance, and addresses issues such as producer licensing, policy terms, coverages, claims handling, premium taxes, disclosures, arbitration, and pre-existing medical conditions, among others. It is expected to be finalized by the end of this year.

Pre-existing conditions

Pre-existing medical conditions can often be a barrier that prevents many cat and dog owners from obtaining pet insurance, as most policies currently exclude them, according to Forbes Advisor. Restrictions are often not obvious to the consumer until after they make a claim. Definitions of pre-existing conditions can also vary across policies and may impact the consumer’s ability to receive any reimbursement for related claims.

The exclusion of pre-existing conditions is typically less of an issue for owners of puppies or kittens who get them insured from an early age, however for older dogs and cats — or pets with hereditary issues — it can be challenging to find suitable coverage. It is important to note that not everyone will have had their pet since it was a puppy or kitten, and many people adopt cats and dogs in the middle of their lifespan or even later, for example with rescue animals.

Verisk is actively involved in providing insurance solutions for pre-existing medical conditions internationally, having developed solutions that facilitate more coverage options for pets with pre-existing conditions in the U.K.

Our Pet Risk Rating Tool in the U.K. facilitates underwriting appetite for pet insurers seeking to provide coverage more easily to pets with pre-existing conditions that otherwise present manageable risks. It can be integrated into an insurance seller’s website or policy administration system, and guides potential customers through a series of simple questions about their pet’s condition.

The risk assessment process quantifies both costs in ongoing maintenance and the potential for future related claims, and then generates a pet risk score that can be used evaluate risk at the point of sale.

Paola Farrugia is business development manager, Pet Risk Rating, at Verisk. She can be contacted at Paola.Farrugia@verisk.com.