It's a dog's life

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With the popularity of pet insurance on the rise, owners have never had so much choice. As Stephanie Denton reports, however, choice can be a confusing thing

According to a report by Defaqto, pet insurance is a "minefield for the uninitiated" and customers are being deterred from taking out cover for their pets as it is "possibly the most complex personal lines insurance product that most people will purchase".

"Pet insurance is a fairly complex type of insurance in terms of personal lines," admits David Seel, managing director of white label pet insurance provider Thornside. "Products can be difficult to compare, and it would be impossible to have a comparison table."

Chris Price, head of travel and pet insurance for Direct Line, agrees but adds that this is no different to other types of insurance: "There is some truth to Defaqto's view of the world but you could say the same about health insurance. Human and animal health are fraught with difficulties, which can make understanding insurance cover difficult."

Policy wordings

However, some dispute this. Melvin Everest, pet product manager at More Than, says: "I don't agree with the Defaqto report. It has looked deeply into policy wordings but most customers won't get that involved when they are buying a policy. If you read all the terms and conditions, pet insurance is no different from any other type of insurance."

Mr Seel believes pet insurance is made complex by there being three separate product categories for customers to choose from. "There is the 12-month policy that pays for cover of conditions for 12 months; the maximum benefit policies, which are annual ongoing products that cover conditions up to a pre-agreed limit; then, finally, there are the full reinstatement policies, which cover on a per-incident basis and reinstate the limit each year," he explains.

"The pet insurance market has developed quite rapidly from around 14% penetration in 2003, to 23% penetration in 2005," explains Suzanne Murray, senior campaign manager at Cardif Pinnacle, in regard to the vast range of products. "It is a very highly claimed against product, and the cheaper policies impose time limits or put a limit on price."

Mr Price agrees: "Companies have diversified and made it even more complicated, as insurers are unable to significantly influence costs faced from vets - 93p in every claim pound is paid towards vets' fees. The problem we have is that we can't cut deals and agree on discounts."

Mr Everest says standardisation of wordings might help. "Once people read the literature they may get confused and so standard policy wordings might be an idea," he says. "But, there are no standards in other policy types such as home and motor and so this might stop competition."

Ms Murray agrees: "Insurers don't want to limit the policies and cover they can provide, and this might happen if they standardise the wordings. Benefit levels and time levels can all be different and standardised wording would not have a huge effect on this."

She believes that regulation of the industry has already had some impact on clarifying pet insurance. "In the past, policies have been difficult to clarify but more recently insurers have been trying to change this," she says. "The Financial Services Authority regulations have taken this forward as insurers have to display the benefits, terms and conditions and exclusions clearly."

However, Simon Wheeler, head of marketing at Pet Plan, argues: "Even if you understand the three broad category types there are still different factors within these, such as whether dental is covered or hereditary diseases."

As policies are so difficult to understand, people may turn to their veterinary providers for advice: a recent study of veterinary nurses revealed that 96% believe that expensive, top of the range pet insurance is not always the best option for pet owners.

Ms Murray says: "It is still a case of you get what you pay for. For rock bottom prices the cover will be restricted, so for the most part you can trust more expensive cover. However, there is still a case of appropriate cover for the appropriate person, which is why the veterinary nurses may say the most expensive is not the best."

Mr Everest adds that the behaviour of vets does not support buying cheaper products: "Vets have told us they don't think 12-month cover is best because 40% of illnesses last longer than 12 months."

The take-up

Despite agreement that the general complexity of insurance products are not enough to put customers off, only 18% of dogs and 12% of cats are insured, according to Mintel. So what are insurers doing to attract customers?

John Bennett, head of products at Halifax Bank of Scotland General Insurance, says: "We try to make people understand how important insurance is, and we have highlighted the issue of pet obesity to do this."

Mr Price adds: "Insurers spend millions on advertising pet insurance on TV to normalise the product and that is the offset. It is not necessarily any easier to understand but it is more in the public eye."

Mr Everest believes these tactics will not necessarily work, however: "Our research shows that the main reason people don't take out pet insurance is that it is a discretionary product. People don't believe anything will happen to their pet, and if it does happen they believe it wouldn't be too bad so they would find the money to cover it if necessary."

So no matter how clear policies are, take-up may always be limited. As Mr Wheeler concludes: "The FSA key facts help clarify policies but the ultimate responsibility has to sit with customers. They need to make sure what they buy meets their needs, and we will always face the challenge of engaging people who don't read the policy details."

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