11 Jul 2016
The veterinary sector has become an increasingly challenging environment for pet insurance. Providers, vets and pet owners all seem to be pulling in different directions when what’s really needed is alignment, explains Ashley Gray.
Ashley Gray
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Consumers are confused about pet insurance and it’s often hard to demonstrate value for money. It’s also difficult for pet owners to understand the differences in insurance products and, as a consequence, complaints to the ombudsman are on the increase.
In 2014, the pet insurance market grew by 13.3% to a record £985 million and it is expected to rise to £1.45 billion by 2019. So, on the surface, it looks like an attractive market to be in; however, there was an increase in the cost of claims of 14.7% in 2014 and these are expected to rise by a staggering 46.7% between 2015 and 2019.
It’s estimated between 15% to 40% of pets are insured – I believe that figure to be more like 25%, but static. Market growth is coming from premium rises, while a rise in claims costs has become a real issue for the industry and one that detracts from the opportunity represented by the 75% of pets that are not insured. This rise in claims costs has also led to a number of companies withdrawing from the market, causing considerable disruption to pet owners.
A key challenge for the industry is what I term “value for money decoupling”. Insurers want to bring the value for money aspect back into the debate. It doesn’t mean the pet owner can’t go to the best specialist consultant in the country – it just means consideration should be given to whether the pet owner would choose that particular consultant if he or she was paying all or part of the bill.
To counteract this value for money decoupling, insurance companies are looking at different models from
co-payment arrangements to tighter terms and conditions and preferred networks. In addition, some of the corporate groups are developing their own insurance products and purchasing referral practices.
RSA has sought to control costs by developing a network of approved practices pet owners must use; a move likely be accepted by the regulatory authorities as long as there is total transparency when the consumer first purchases a policy.
A key motivator for pet owners to take out insurance is because of the risk of having a referral case, so aiming a cost control strategy purely at referral practices is not necessarily the answer. Instead, we need to question what are the real drivers of claim inflation?
It is vital to get the price right in the first place – in the case of Vetsure, premiums are determined by the prices charged by our accredited practices – this recouples cost of veterinary services to our insurance product. Pet owners are incentivised (not forced) to use our accredited practices and we don’t influence the choice of referral centres made by practices. This approach certainly seems to be working for us as 94.8% of Vetsure policyholders renewed in 2015.
So, what does the future hold? I believe we will see more co-payment models, preferred networks and other cost-controlling strategies as insurers follow the lead of other sectors. These changes won’t be problematic as long as they are transparent to the consumer at the point of purchase.
Vets need to become more involved in discussions with pet owners about the types of policies available and be aware of the cost to value proposition. This is a great opportunity for both the insurer and vet profession alike as long as it is handled appropriately.
