Economist Explains Why She Bought Pet Insurance

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.

Pet Insurance Industry Activity

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 selling Pet Insurance

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.

Vet Jailed for Pet Insurance Fraud

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.

Petsecure TV commercial

Petsecure is airing a TV commercial in Canada promoting its pet insurance.  http://www.youtube.com/watch?v=_NV6A1-evCQ    This is the first TV ad for pet insurance that I have seen and hope to see more in the future.

The ad is well done, although during the first few seconds I thought the narrator was talking about the boy (maybe I was supposed to think that.)  The ad successfully touches on the themes of pets as beloved family members and of pet insurance bringing peace of mind.

RIP PurinaCare

Purina is getting out of the pet insurance business.   Last week, Pethealth (24PetWatch) announced that they are buying the 12,000 PurinaCare policyholders (or more specifically, they are buying the right to administer the current PurinaCare policies and the right to any subsequent policy renewals.)

The main question for PurinaCare customers revolves around renewals.  When it comes time to renew, will the PurinaCare policyholder have to switch to a Pethealth policy or do they get to keep their existing policy?   This could have real effects on customers due to the different types of coverage offered by the two companies (e.g, Pethealth has per incident limits, while PurinaCare does not.)

Is it OK to Spend $6,000 on your Dog?

Interesting article in the NY Times about a 13-year old bichon frise who needed a $6,000 gallbladder surgery. The piece highlights two trends in pet healthcare: 1) advances in veterinary medicine allow for all sorts of life-extending options for sick pets that simply were not possible a couple of decades ago and 2) the treatment of pets as family members, deserving of pricey medical care.

Even better are the reader comments after the article.  While there are many people who complain that spending $6,000 to save a dog is a clear example of misguided priorities, the majority of the readers feel that people should spend their money on things that bring them happiness.

I have to agree with the majority.  Nobody complains when a family spends several thousand dollars to take a trip to Disney World.  So why does spending the same amount on a beloved pet cause such consternation?

2012 VPI Hambone Award

This years VPI award for the most unusual claim goes to Peanut, a dachshund-terrier mix, who somehow was buried alive after a tussle with a skunk.   Peanut suffered from hypothermia and spent two days under a vet’s care.  More info on the Hambone website.

2 pet insurers listed on Inc 500

Demonstrating that the pet insurance market continues to grow in the down economy, two US based pet insurers were named to the 2011 Inc 500 list of fastest growing companies.

PetPlan listed 2010 revenue of $18.7 million with 40 employees. PetFirst Healthcare listed revenue of $3.3 million and 32 employees.

We are assuming that PetFirst is using its commission amount as revenue, while PetPlan is using its gross premium amount as revenue. For an apples to apples comparison, PetFirst should have about $11 million in gross premiums (using a 30% commission rate.)

If we further assume an average annual premium of $300 for each company, we would estimate that PetPlan has approximately 62,000 active policies, while PetFirst has approximately 37,000 active policies.

Vet Visits Down

A new study by Bayer Animal Health trying to find out why pet owners are reducing the number of trips to the vet has found six main causes:

  • the recession
  • fragmentation of vet services
  • availability of pet health info online
  • feline resistance (kitty hates going to the vet)
  • don’t feel need for annual checkup
  • cost of vet care

I can certainly believe the last reason. This site allows pet owners to post reviews of their vets and while most people are very happy with the treatment they receive, they consistently gripe about the costs.