It's a dog's life?

In this nation of animal lovers, insurers have recognised the potential opportunities in the pet insurance sector. However, David Fanning believes that as new entrants try to entice customers with cheap cover, policy limits have been downplayed, which is now seeing policyholders dogged by extra costs

Fewer than one in six cat and dog owners insure their pet, although specialist insurers and retailers claim that pet insurance has been the fastest-growing area of personal lines business over recent years.

This growth - and the concomitant interest of newly-arriving insurers and scheme providers - has arguably not always been in the pet owner's best interests, however. Simon Wheeler, marketing director at Pinnacle Pet Healthcare, claims the new participants' recognition of the potential market opportunities has led to the launch of what he describes as "naively-priced" products. "Many of the new policies introduced have been simplistic, offering one price nationwide for instance, and failing to recognise either breed, or regional cost-of-living differences."

For the most part, pet owners seem to be either uninformed or incurious about the nature and scope of the policies they are buying and, as evidenced by the upsurge in such products sold through supermarkets, are focused purely on price. "Many customers have no understanding of the different types of policy available," says David Jones, manager at Paws Pet Insurance Services, a subsidiary of Jardine Lloyd Thompson. "They do not register the significant differences between such phrases as 'cover for life' and 'cover per condition' or the implications of a '12-month limit', or a 'pre-existing condition'. They also have little idea of the cost of veterinary procedures."

Mr Wheeler goes further with his criticism of providers. "Most pet insurers don't recognise the market's dynamics." He claims that PPH has the right approach, having developed a matrix of policy prices, with rating by breed and by location.

Figures show that 98% of claims are in respect of veterinary fees - a fact that can have significant bearing on a pet insurer's results. What some providers have failed to recognise, suggests Mr Wheeler, is that veterinary practices have changed over the past decade. "There is a lot of venture capital sunk into veterinary firms. They have become medium-sized businesses, subject to financial and management disciplines, and the investment of capital needs to be paid for."

Phenomenal inroads

The selling of pet insurance through retail outlets, such as supermarkets, has made phenomenal inroads into the market but, according to direct selling insurers, can lead to significant difficulties for pet owners as the policy ages and pets mature. Policies often limit treatment for chronic conditions to 12 months and this kind of restriction can be unexpected by policyholders.

Certainly, the pet insurance market has not proved as attractive for some newcomers as they had first expected. Evidence of this lies in Asda's withdrawal of its scheme earlier this year and the decision of Lexington, a subsidiary of AIG, to pull out of pet insurance worldwide, which reportedly left some two dozen schemes high and dry.

Other insurers continue to come in, of course, lured by the potential in such an untapped market. Royal London, for example, has launched pet insurance - underwritten by Churchill subsidiary Indemnity Insurance - that offers three premium levels and a 'novel' 12-month plan, rather than a cover-for-life product. The plan covers all breeds of cats and dogs, but imposes no ratings for geographical location. The insurer aims, says a spokesman, to attract customers for whom other insurers' premiums are "just too high" and its one-year cover plan will give pet owners a range of benefits "at a much lower price than life cover".

Mr Wheeler reports that the players in the pet insurance market have gone from 15 specialist companies to around 80 or so providers, "some of whom have burnt their capital very quickly", and he adds that warning bells are sounding for those without substantial claims and underwriting experience.

Crucial in the eyes of Paul Davies, product manager at More Th>n, is that consumers recognise the fact that "supermarket pet insurance offerings limit cover" and that policyholder expectations are not always met.

"There is a duty on the insurer to advise consumers and raise awareness of the restrictions and limits on covers. Pet owners must be wary of low-cost providers offering just 12 months' cover for treatment. If fresh insurance is sought after that period, then a pet owner will find it impossible to get alternative cover for what will then be a pre-existing condition." The pet insurance market is, he says, "still buoyant and a growth area", but it is an immature market in which significant underwriting and claims management experience are vitally important.

"Substantial backlash"

For his part, Mr Wheeler expects there to be a "substantial backlash" within the next 18 months or so from those policyholders who bought pet insurance through the supermarket retailers on the basis of their low cost and without understanding fully the consequences of the restrictions and limits specified in those policies. "The market needs products that will meet the expectations of both pet owners and vets."

He forecasts that the number of players in the market will fall to around two dozen providers and that "underwriters will have much more control".

While he is critical of many of the current offerings from supermarkets and other outlets, he believes that well-regarded retailers with high brand values "offer a fantastic opportunity" for market growth and penetration.

"Positioned properly, pet insurance can provide long policy durations and continuity of relationship when other lines may come and go. If a poor choice is made, though, pet insurance has the ability to impact adversely on a seller's brand."

Mr Jones believes that "retail providers should receive praise for raising the profile of pet insurance", but he cautions against too much euphoria.

"If the market is not careful, pet insurance will cost more than home or motor insurance and many of the new insurer entrants will have taken home their bat and ball."

There is a large market available to those insurers with the right products, but there appears to be an urgent requirement to educate pet owners about the many issues involved in keeping and caring for a pet - not least the steadily rising cost of veterinary treatment and the need for insurers' premium prices to reflect those realities.

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