PetFirst announced that 58,700 claims were filed in 2013 for which $5.6 million was reimbursed to pet parents.
For a comparison, Pets Best stated that 237,500 claims were filed in 2012. However, Pets Best offers a wellness plan and PetFirst does not. Also, its not clear if both of the insurers are excluding denied claims in these totals.
We estimate that PetFirst has about 40,000 active policies and Pets Best has about 100,000 active policies.
Last week, a friend of a friend noticed that one of her dogs seemed to be in discomfort, so she gave him three Motrin. Big mistake. Within a few hours she was at the emergency vet clinic where she was asked if she was willing to pay for surgery to try and save her dog’s life. Two days and another surgery later, the dog passed away. The owner had run up over $6,000 in vet bills.
The very next day, the owner bought VPI pet insurance for her second dog.
She mentioned that before her first dog got sick, she had no idea that vet care could be so expensive.
This is an example of the “Second Pet” theory of pet insurance marketing. This theory (which I just made up, but is backed by anecdotal evidence) predicts that most pet parents won’t get pet insurance until an uninsured pet runs up a very large vet bill, thereby prompting the owner to “discover” pet insurance and then buy it for the second (and any other) pet in the family.
The Second Pet theory is good news for pet insurance companies. As vet costs continue to rise, more pet parents will encounter steep vet bills and ultimately stumble upon pet insurance as a useful tool to help them manage their costs.
Pethealth Inc, the company behind 24PetWatch insurance (US & Canada) and PetProtect insurance (UK), announced double digit growth for the 3rd quarter of 2013. Insurance revenue increased 15% to $6.5 million.
The company website notes that it insures over 200,500 pets. Based on that number, I would expect the insurance revenue to be higher. Using an average premium price of $25 per month, I would expect about $15 million in insurance revenue for the quarter (200,500 x $25 x 3 months.)
Perhaps the lower revenue per customer is due to the free 30-day trial insurance policies the company gives away. Assuming those free policies are included in the 200,500 total, a high number of freebies would certainly change the math.
Pets Best released some interesting 2012 data:
- claims were filed on nearly 50% of pets they insure
- among these pets, an average of 4.75 claims were filed
- pet owners who filed claims requested any average of $1,717 throughout the year
So if we take our estimate of 100,000 active policies for Pets Best, that means:
- claims were filed on about 50,000 pets
- about 237,500 claims were filed last year (50,000 x 4.74)
That’s a whole lot of claims to process. Pets Best has a wellness plan and those types of claims should be simple to process, but that still leaves a lot of forms to be reviewed.
Every week I get a few emails from people with sick pets asking which insurance companies cover pre-existing conditions. I have to tell them that none of the companies do and then explain that insurers would go bankrupt if they provided coverage for pre-existing conditions. This is because people would just wait until their pet got sick and then sign up for insurance. Very quickly, the pet insurance companies would be paying out much more than they took in and go out of business.
The new Obamacare law mandates that human health insurance companies can’t turn down a customer because of a pre-existing condition. But won’t these companies suffer from the same problem, with people waiting until they get sick and then signing up for Obamacare?
No, because Obamacare requires everyone to have health insurance or pay a penalty. This guarantees that there will be a large pool of people, including the young and healthy, who will help pay for the care of those with pre-existing conditions.
So the only realistic way to cover pre-existing conditions for pets would be to institute an individual pet mandate, where healthy puppies subsidize old sick cats. And this will never happen anywhere, not even in Sweden.
PetPremium, the latest entry into the US pet insurance market, opened for business last week. Within hours of opening, the company sold its first policy to the owner of a Shiba Inu puppy.
Sandy Boucher, the CEO, was previously chief marketing officer with PetPartners, the agency behind AKC pet insurance. Frans Van Hulle, the President, also runs Revi Media, a successful lead generation company. The Hartville Group will administer the policies.
It will be interesting to see how quickly PetPremium can grow. Revi Media is a savvy online marketer that generates thousands of leads per day for other insurance categories (auto, health, disability, etc.) This background should help them compete against the established companies in the industry.
Megan McCardle, a popular economics columnist, recently wrote a column explaining her decision to buy pet insurance for her bullmastiff puppy. McCardle gives two reasons for buying her policy: 1) she thinks the cost is cheap and 2) the insurance will allow her to make medical decisions without financial considerations being a factor.
McCardle pays $60 per month for a high-deductible policy that has no lifetime limit. Some may dispute that this amount is cheap, but she feels that compared to the thousands of dollars of coverage that she now has for things like chemotherapy and transplants, it is a great deal.
But the main reason for the purchase is that she doesn’t want to have to make the difficult decision about how much to spend on vet care should her bullmastiff have a serious medical problem in the future. I hear this quite a bit from pet parents who purchase insurance for the peace of mind it brings.
McCardle also mentions that she paid $5,000 for back surgery for her last bullmastiff. This is not surprising, as we have noticed that the pet owners most interested in pet insurance are ones who have racked up substantial vet bills with a previous pet. In fact, it is unlikely that McCardle’s primary reason for purchasing pet insurance, to avoid weighing her her pet’s life against her bank balance, would even have crossed her mind if this was her first puppy.
Prior experiences with sick pets, and the corresponding vet bills, is a reason to expect the US pet insurance market to grow. While the typical pet owner today doesn’t have pet insurance, they will certainly be thinking of the peace of mind that it brings when it is time to take home a new puppy tomorrow.
Over the summer, two US pet insurance companies underwent a change in ownership.
The Hartville Group, the folks behind the ASPCA and PetsHealth brands, was acquired by its underwriter, the United States Fire Insurance Company (a subsidiary of Fairfax Financial.) Based upon a reported sales figure of $34 million and using our estimate of 100,000 active policies, this puts the price at approximately $340 per customer.
Embrace Pet Insurance sold a controlling interest to Beauvest for an undisclosed amount. Beauvest acquired the shares owned by Jumpstart and NCT Ventures, the original investors who financed Embrace with just under $3 million back in 2008. While no specific numbers have been disclosed, it has been reported that these investors profited on the sale of their shares.
As both Fairfax and Beauvest are based in Toronto, it appears that Canadians are upbeat on the prospects of the US pet insurance industry.
Walmart started selling pet insurance in select stores in Canada. The policies will be underwritten by Western Financial Insurance, the company behind Petsecure. Walmart Canada has a website where pet parents can get quotes.
This type of partnership between pet insurers and consumer brands has been around in the UK for several years, with brands such as Tesco, Sainsbury’s (grocery stores) and Virgin Money (a bank) successfully selling policies that are then handled by an established pet insurance company.
In the states, PetFirst had a similar partnership with Kroger to offer pet insurance. However, this relationship did not work out and the companies cancelled the arrangement last year.
A UK vet was given a two year jail sentence for defrauding several pet insurers out of £225,000. Mathew Morgan made 54 false claims against PetPlan, Petprotect, Direct Line and Sainsburys over the course of three years.
Reports indicate that Morgan created fictitious cats and, using documentation from his vet office, filed claims with the insurers for various illnesses and injuries. All claims were in his name and used his actual home address.
So I assume the plan worked something like this: 1) pretend you have five cats; 2) buy four insurance policies on each cat; 3) once a year file a claim against each insurer for each fake cat; 4) create phony vet bills on your business letterhead supporting the claims; 5) collect twenty insurance checks per year; 6) repeat until caught.