P&C the June 2024 issue

Protect Your Pet

Pet insurance has become a multibillion-dollar global industry, but it has plenty of room to grow.
By Zach Ewell Posted on May 26, 2024

Pet ownership in the United States has grown consistently in recent decades. But while pet insurance has become a multibillion-dollar industry, the percentage of insured pets remains small.

The share of U.S. households that own pets has grown from 56% in 1988 to 66% in 2024, according to the American Pet Products Association. That accounts for nearly 87 million American homes. The COVID-19 pandemic juiced those numbers; forced to shelter in place and spend large amounts of time without friends and family, many Americans adopted pets for companionship. A 2024 pet ownership survey by Forbes Advisor found that 78% of respondents had adopted their animals during the pandemic.

The pet insurance industry is worth billions of dollars, but just 4.4% of pets in the United States are insured, showing the industry has a long runway for growth.

The business today is almost all about dogs and cats. Dog insurance on average costs $576 per year, while cat insurance averages $336 annually.

Research has shown a correlation between employee satisfaction and companies that offer pet insurance as part of their employee benefits program.

“From 2016 to 2022, the pet insurance industry grew from just under $1 billion to $3.5 billion [in North America]. That growth continues,” says Julie Galante, chief insurance officer at pet insurance provider Fetch. “Yet it remains the case that only 4.4% of pets are insured in the U.S. That’s one of the reasons the industry is expected to continue growing at a 20% CAGR [compound annual growth rate] through 2025.” That anticipated growth creates an opportunity for brokers to expand their book of business. Furthermore, pet insurance offered as an employee benefit may be an undervalued benefit, with strong links to worker retention and engagement.

A Growing Market

While animal insurance dates at least to the 19th century, pet insurance would not be offered in the United States until the 20th century, with coverage for a collie that played the role of TV dog Lassie. The policy was created by veterinarian Jack Stephens, who said he wanted to offer insurance for pets after he euthanized a dog whose owners could not pay for its treatment. Stephens subsequently founded several pet health insurance companies and would additionally help start the North American Pet Health Insurance Association, an organization focused on sharing standards and data to grow the market across the continent.

From 2016 to 2022, the pet insurance industry grew from just under $1 billion to $3.5 billion [in North America]. That growth continues.
Julie Galante, chief insurance officer, Fetch

As of 2022, the market had become an $8.6 billion global industry, and it’s projected to balloon to over $16 billion by 2032, according to Global Market Insights.

The roughly 20 pet insurers in the North American Pet Health Association comprise 98% of the North American market, according to online pet insurance marketplace Pawlicy Advisor. Members range from pet-specific insurers like Fetch and Embrace Pet Insurance to large national and global insurers including Liberty Mutual, MetLife, and Nationwide.

How It Works

Insurance often covers treatment of common health issues, including stomach problems, skin conditions, ear infections, and cancer screenings, though it’s important to check policy terms. Owners generally can take their insured pets to any veterinary practice they choose, versus having to navigate a plan network.

“Nationwide pet insurance members may visit any licensed veterinarian in the world,” says David Hurley, director of sales, voluntary benefits, and member/specialty groups at Nationwide. “At the time services are rendered, the member pays the veterinarian directly and then submits a claim for reimbursement of eligible expenses. The level of reimbursement varies based on the member’s chosen coverage.”

Pet insurance plans may also include virtual care. “Pet parents have the freedom to choose any licensed veterinarian covered by our policy, without restrictions or limitations imposed by networks,” says Christine Langan, head of pet insurance at Axis Capital. “Additionally, pet owners have the option for 24/7 access to an online vet.”

Pet wellness plans are another option. They are not insurance policies; they primarily focus on providing exams, vaccinations, and select healthcare services and products, as well as preventive care and neutering procedures. This approach can reduce healthcare costs but can also create a treatment gap. “Unlike wellness plans that only provide coverage for routine or preventive care, pet insurance is intended to help offset the cost associated with unexpected accidents, injuries, or illnesses,” Hurley says.

Big, Small, Mutt, or Purebred?

When it comes to pet insurance in the United States, it’s all about cats and dogs. Over 65 million households say they own canines, followed by nearly 47 million households providing a home for felines, according to the American Pet Products Association. (Of course, many households are home to both cats and dogs.)

On average, dog insurance costs $576 annually and cat insurance $336 per year, Forbes Advisor reported this year. That covers $5,000 in annual coverage, a $250 deductible, and 80% reimbursement.

However, monthly premiums are almost as varied as the breeds of animals they cover. For instance, covering a French bulldog may set you back $167 a month, while a Yorkshire terrier will probably cost only $65 a month, according to MarketWatch.

“There’s a myth that pet insurance should be this very generic type of benefit,” says Trevor Garbers, senior vice president and practice leader at Hub International. “In fact, it’s a very rich type of benefit. It’s actually very, very close to a health [benefit] and depends on the breed of the animal. The general public’s perception is, ‘I’m just going to grab insurance; it’s going to be said dollars.’ But it’s actually not like that.”

The ballpark figure for what insurers are willing to pay out per claim for pets varies. For example, the top claim paid out for a dog in the United States in 2022 was $60,882. According to the North American Pet Health Insurance Association, the dog was a 2-year-old flat-coated retriever with a case of pneumonia. For cats, the highest paid-out claim in 2022 was $40,057, for a 2-year-old sphynx suffering from urethral obstruction.

Dog insurance is on average about 75% more expensive than cat insurance, says Scott Taylor, president of Spot Pet Insurance and owner of Stone, a retriever. “This reflects facts that dog owners submit claims typically at twice the rate of cat owners. Dogs get ACL injuries at over twice the rate than cats do and MCL injuries at 15 times that rate. They’re more susceptible to hip and elbow dysplasia versus a cat. So those are some key reasons why dog insurance is more expensive.”

French bulldogs are listed as both the most popular breed in the United States and among the most expensive to insure. “French bulldogs generally just have a lot of issues as a breed,” says Taylor. “They’re prone to allergies, respiratory issues, and the same hip dysplasia as many other breeds. They can’t naturally give birth; they need to get a C-section. They’re susceptible to bronchial cephalic airway syndrome as a result of their face structure, which is accompanied by a host of respiratory complications.”

There’s a myth that pet insurance should be this very generic type of benefit. In fact, it’s a very rich type of benefit.
Trevor Garbers, SVP and practice leader, Hub International

Unsurprisingly, average monthly insurance costs tend to rise as the dog ages. For instance, a 3-month-old French bulldog will cost on average $62 a month, according to MarketWatch. A 5-year-old dog of the same breed will cost on average $76 per month. That rises to a monthly average of $169 to insure a 10-year-old French bulldog. That correlation of increasing age and higher premiums largely holds true across breeds for both dogs and cats.

An informal cross-referencing suggests there is a significant correlation between popularity of breed and the cost to insure a dog. After French bulldogs, Labrador retrievers, golden retrievers, and German shepherds are the most popular dog breeds in the United States. MarketWatch also lists them as some of the most expensive breeds to insure. This begs the question of if the popularity of a breed impacts the cost of insurance.

The popularity in breed does not impact premium; characteristics of the breed are what impacts pricing,” says Galante.

Mixed-breed dogs generally are at lower risk for health issues than purebreds, meaning their premiums can be lower, Taylor says. That also applies to smaller dogs, which tend to face fewer hazards than larger dogs.

Largely left out of pet insurance analytics and offerings are avian or exotic pets. Beyond dogs and cats, there is a niche market for covering every other pet, says Hurley, owner of Henry and Zeke, two 7-month-old basset hounds. “We cover about 1.2 million pets today, and about 2% of them are avian or exotic,” he says.

That encompasses lizards, gerbils, rabbits, potbellied pigs, pet chickens, and tarantulas, Hurley says, but not venomous snakes.

A New Metric for Employee Benefits

The growing number of Americans adopting cats and dogs is also shaking up the employee benefits space. According to the Society for Human Resource Management (SHRM), nearly one in five employers offered pet insurance to their workers in 2023. That was up 5 percentage points from 2022. “We saw a huge uptick in both pet ownership and policies” during the pandemic, Hurley says. “People weren’t going into an office. They were home, they were able to care for their pets, and some were looking for a pet to keep them company. So we saw a huge uptick during the pandemic.”

For employers on the fence about extending their benefits to employees’ cats and dogs, the positives are evident, according to a 2022 survey from Nationwide, The Pet Effect. The survey directly linked pet health insurance offered by employers with improved employee engagement, attraction toward the company, and retention. Seventy-six percent of employees at companies that offered pet insurance described themselves as fully engaged, compared to 68% of employees who were not offered the benefit. The gap widened when it came to employees who were more likely to recommend their job/employer to others: 71% for companies offering pet insurance, 56% for companies without. Lastly, 81% of employees surveyed said they planned on staying for at least a year at companies with pet insurance, while 75% of employees at other companies expected to remain for another 12 months.

Owning a pet also boosts an employee’s physical and mental health, according to the same survey. That includes helping calm anxiety and prevent obesity, Hurley says. “It can help with many health ailments because, when you have a pet, you’re less lonely, so you’re less anxious,” he says. “So less mental health services are necessary. You’re out there exercising. Perhaps if you have a dog, that dog needs to be walked. So you’re actually getting into better health by owning that pet than if you didn’t own a pet.”

If an employer doesn’t want to help pay for an employee’s pet insurance policy, it can offer it as an add-on to their sponsored insurance. Pet insurance as voluntary benefit can be deducted straight from employee pay in some cases. “Most employers typically don’t pay for the benefit, but the employee will pay for it themselves,” Hurley says. “So it doesn’t cost the employer anything to offer the benefit. But that pet effect that they get is just priceless, in my opinion. It allows them to offer that benefit, with very little lifting at their end, via payroll mechanism. And the payroll mechanism is really easy for the employee. It just gets deducted from your paycheck.”

Pet parents have the freedom to choose any licensed veterinarian covered by our policy, without restrictions or limitations imposed by networks.
Christine Langan, head of pet insurance at Axis Capital

Still, just 19% of employers offered pet insurance as a benefit to employees as of 2023, SHRM says. That leaves a lot of room for brokers to grow their offerings and book of business by extending this undervalued benefit.

“Insurance brokers and insurance companies like ourselves see it as a real need out there,” Hurley said. “And it’s a huge need to be filled for the employer as well as just for consumers.”

What does that transition of extending employer coverage to offer pet insurance look like for brokers?

Even though employers offer pet insurance as part of their employee benefits, pet insurance is classified as property and casualty insurance, notes Garbers, owner of Parker, a 13-year-old shelter Shih Tzu. That means brokers offering pet insurance must hold or obtain a P&C license.

“It was a very easy transition,” Garbers says. “The demand for the product is actually greater than the availability to the end user. It is the number-one requested employee benefit option today. It’s been that way for about five years. So, to migrate a P&C benefit into a health benefit was very easy.”

For brokers, the most difficult part of introducing a pet insurance benefit into an organization can be explaining it. It’s difficult to weave the benefit into an all-encompassing employee health benefit package because a pet policy is underwritten differently, Garbers says.

For Axis Capital, entering the pet insurance market in 2021 was a way to diversify its offerings. The insurance company already offered accident and travel insurance and policies that serve athletes, first responders, and other specialist professions. “Pet insurance fits into our portfolio management goals, as it enables us to diversify our portfolio while playing to our strengths of developing specialty accident and health insurance solutions,” says Langan.

Expanding pet insurance can also strengthen the relationship that brokers and carriers have with early-career professionals who are not entirely acquainted with employer-sponsored healthcare. As they consider their pet’s care, employees can also evaluate where their own coverage might be lacking.

Millennials and Generation Z together make up 49% of current pet owners in the United States by generation, according to Forbes. Millennials specifically make up the largest share of owners at 33%. Employers extending their benefits to offer pet insurance to younger generations of the workforce can help improve workforce engagement of employer-sponsored healthcare. “I will say the millennial and Gen Z generations are purchasing it,” Garbers said. “They want to insure their pet. They will say, ‘Do I have insurance on my phone? Insurance on my pet?’ Then they will start looking at increasing their insurance on themselves.”

While major insurers like Nationwide and Axis have already jumped into the market, Garbers says he expects the level of demand and market growth will attract other large insurance companies, without naming particular companies that might be eyeing this opportunity.

“They want to insure an employee for the entire life cycle, which in the past has always included home, auto, health, and life,” Garbers says. “They always say—a pet—their whole life is you. So what we’re seeing is a large entrance of other insurers, that have multi lines, which are coming into this market rather fast, either to create their own plan or partnering up to white-label it. And that’s changing the dynamics of the marketplace because they’re bringing in large volumes of R&D. So maybe they will put some pressure on pricing, put some pressure on enhanced benefits.”

Zach Ewell Content Specialist Read More

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