Creature comforts

Though a relatively new entrant on the insurance industry scene, pet insurance is still subject to many of the issues common to other insurance products. Hugo Cranmore illustrates how insurers are taking the lead and sniffing them out

Pet Insurance is the proverbial new kid on the block, having quickly matured into an essential component of many well-known brands' personal insurance offerings. And like other longer established classes of cover, pet protection suffers many of the recognisable growing pains.

The problem currently under scrutiny is claims inflation, stimulated in this case by veterinary practitioners. The situation can be likened to that in motor insurance, where for many decades the insurance industry knew very little about the repair industry - it simply paid the bills and raised premiums. Work conducted by motor research and repair centre Thatcham, as well as a continuing dialogue with suppliers, has since made things more efficient and reduced many unacceptable practices.

New entrant, old threats

According to commentators, there is an urgent need for similar action in pet insurance, where the rapid rise in claims inflation is reportedly higher than for any other personal lines product in the past 10 years, bringing with it the inevitable threat of future premium hikes. Steve Wilcox, product manager at Axa, responsible for pet insurance, says that while Axa is a relatively new entrant to the pet market, it has noted that veterinary fees have been increasing by 10% or more during the past three years. "We've also seen that treatments have increased; for example, in the use of scanners and other procedures more familiar in the private medical arena."

Another inflationary factor arises from the 'Let's give your pet a check-up while you're here,' element. David Seel, managing director of Thornside, explains that following the foot-and-mouth outbreak many small vets have refocused their practice on pets and smaller animals - a trend that is no doubt helping to exacerbate the scale of current problems.

It is also alleged that some vets are dovetailing their treatment decisions to fall within the scope of any existing policy cover. One cited example is the performance of two hip operations on one animal, covered by a policy offering just 12 months' protection, rather than waiting 18 months between the two procedures.

Chris Price, pet insurance business manager for Direct Line, believes this is clearly an untenable position: "Unless urgent action is taken to curb the present situation, there is a serious danger that things could get out of control, a real consequence of which will be that even fewer pets will be covered against illness or injury."

Last year, Direct Line - now part of Royal Bank of Scotland Insurance - instigated the establishment of the Association of British Insurers' pet insurance forum, which now comprises the major pet insurers. "The initial and primary aim was to engage with veterinary industry representatives to highlight the issues of overcharging and overtreatment and to explore ways of addressing the problems the industry currently faces," says Mr Price. "To date, the ABI PIF has had a productive meeting with the Royal College of Veterinary Surgeons and a meeting is also being sought with the British Veterinary Association to discuss these issues."

Melvin Everest, pet technical consultant for More Than, explains the insurance industry needs to gain a better understanding of these inflationary factors as the sophistication of veterinary procedures moves closer to that of humans. And Mr Wilcox believes the proposed ABI dialogue with the RCVS is a major step towards the aim of getting to grips with the inflationary situation. "We need to ensure certain treatments being applied are really necessary, hence the need for guidelines and support from the RCVS."

However, Ian Holloway, external affairs officer for the RCVS, points out that, as a statutory regulator, it involves itself in disciplinary issues rather than matters concerning market forces. "As a general observation, the public is unaware of the costs of veterinary drugs and services," he says. "People are used to the NHS absorbing the impact of these costs for themselves but, of course, there is no NHS when it comes to pets.

There are also considerable differences in these costs in different parts of the country."

But as Mr Price says: "Ultimately, what we are attempting to achieve is true to the principles of good cost containment - something any good insurer should be aiming for and about which RBS Insurance feels very strongly - particularly when trying to provide consumers with value for money products that won't cost the earth."

Unlike private medical insurance, there are no agreements between insurers and suppliers - in this case vets - over charges, nor is there an understanding of best practice treatment regimes. Furthermore, there are not really any large or national networks of vet practices that could perhaps help the situation. The position is complicated by the fact that some insurers rely on vets to deliver new business leads, hence a possible reluctance to bite the hand that feeds them.

Co-insurance option

Current countermeasures include more sophisticated ratings that take postcodes into consideration. And Mr Seel suggests excesses and the introduction of an element of co-insurance whereby the client pays 10% to 15% contribution towards every treatment.

Sarah Gaskin, business development manager at Pinnacle Insurance, adds that it is vitally important to capture all details at policy inception, as well as on the claim. "We ask the name of the chosen veterinary at the outset and rate according to area. It might be possible that, one day, rating by practice might take place but that would be difficult for an insurer to administer."

Like with other personal insurances, fraud undoubtedly occurs under pet policies and signifies yet another challenge that underwriters are attempting to combat. Mr Seel confirms Thornside has had fraudulent claims in the past, sometimes involving collusion: "Vets should be above all that, of course, but incidents have occurred - in most instances involving lesser quality breeders. In such cases we always appoint loss adjusters."

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