Despite a decade-long annual growth rate of almost 17% and 6.25 million insured pets across North America, recent social media posts and articles have raised concerns about the functionality and viability of pet insurance. As representatives of the North American Pet Health Insurance Association, the trade group whose members make up approximately 99% of the industry’s pet insurance policies and premiums, we want to address those concerns.
Many veterinary professionals view pet insurance as confusing and unclear. That belief has created uncertainty that can discourage veterinary teams from mentioning pet insurance to clients as a financial tool to help cover the costs of care and mitigate the impacts of veterinary inflation. Some of the more pressing concerns we have heard of late are:
- The cost of pet insurance premiums is rising.
- Not all coverage offers direct or immediate reimbursement at the time of service.
- Already heavily regulated, pet insurance will become a managed care system, like human health insurance, and insurers will dictate care to veterinarians.
Let’s examine each one.
Rising Premium Costs
Pet insurance allows pet owners to share the risks of the future cost of veterinary care with a partner, the insurance provider. Pet insurance is not meant to be an investment; policyholders should be relieved when they don’t need to use it. Expecting a return on investment can create a catch-22 for the insurer because when insured pets stay healthy, their owners don’t file claims. Consequently, the owners may feel they’re not getting their money’s worth and might drop their coverage, thereby losing the broad protection they likely will need in the future. As a result, the remaining pets covered by the insurer are typically older and less healthy. Their owners are prone to submit more and costlier claims, which increases premiums.
A second factor impacting premium prices is the rising expense of veterinary care services. Veterinary inflation has risen by 38.5% since 2019, with 71% of the increases occurring since 2021. Increases in pet insurance policy rates lag the actual veterinary price increases, as they are mostly based on the claims payouts the insurer experienced over the past year.
A third factor in rising premium costs is the U.S. regulatory process. Each state has an insurance department with whom rate increases must be filed and approved. Approval can take six months to two years, further delaying each insurance provider’s requested increases. What might appear to be a huge annual hike could be compounded increases spanning multiple years.
Reimbursing Policyholders
All pet insurers recognize that the current method of reimbursed payments is inconvenient, with some veterinary fees due at the time of service exceeding what a pet owner can afford to pay upfront.
Some providers have developed direct-pay solutions, which they could not operationalize for various reasons. However, with recent market changes, plus the advent of artificial intelligence, large language models and retrieval-augmented generation, the ability of providers to adjudicate claims in real time is promising. Many pet insurers are working to implement in-house direct-pay solutions.
Insurer Influence
One of the largest fears veterinarians express is that pet insurance providers will begin to dictate care. This misappropriated concern comes from human health care and its formularies, excessive billing paperwork, and required preauthorization for diagnostics and treatments.
In North America, pet insurance is regulated as property insurance because pets here are legally defined as property. As a result, the relationship is between a pet insurance company and the pet owner. Veterinary professionals provide the care they deem necessary, in alignment with each pet owner’s needs and beliefs.
In contrast, human health insurance is an accident and health insurance product. The relationship is between the insurance company, human health provider and government. This arrangement means the insurer and government can set service reimbursement rates and dictate care coverage and the medications used.
Client Education
Finally, a larger question that veterinary business consultant Dr. Wendy Hauser thinks veterinarians should ask themselves is, “What can we do, and what should we be doing, to prepare pet owners for the future costs of veterinary care?” She believes this opportunity is overlooked and an underrecognized part of client education. Because clients don’t understand their pets’ potential health risks and needs, they are often woefully unprepared for the actual cost of care. As a result, veterinary teams today can become frustrated, upset and feel guilt when clients decline recommendations.
Proactive cost-of-care conversations are an essential part of responsible pet ownership and should be a mandatory component of effective client education. We believe it’s a worthy investment for veterinary clinics and hospitals, is simple to do, and can be reinforced in a couple of sentences. Delivering a consistent message is key in preparing clients at each visit for recommended care over the next 12 months and in advising them about new needs as the pet ages.
Pet insurance is a proven concept worldwide. It has been North America’s fastest-growing line of property and casualty insurance for almost two decades. Given this strong and established market, today’s pet insurance products will evolve as a proactive financial support and payment option for pet-loving families to provide veterinary care.
PREMIUM PRICES
NAPHIA’s latest State of the Industry Report showed a sharp difference in the cost of accident and illness coverage for U.S. cats and dogs. The average annual premium in 2023 was $383.30 for cats and $675.61 for dogs.