The average cost of a pet claim is on the rise with payouts often exceeding premiums. However, insurers need not cut margins to remain profitable, with Mark Colonnese of Aquarium Software, pointing to the smart deployment of digital technology as key to becoming more efficient.
Research by the Association of British Insurers has confirmed pet insurance pay-outs hit a record-high of £785m in the UK in 2018. Despite the number of individual claims falling, the size of an average claim rose.
This is not a one off. The 2018 increase in claim size was 5% on the previous year, meaning the average size of a pet insurance claim is now £793. The ABI research suggests that the higher costs associated with pet insurance claims are driven by the increasingly sophisticated medical procedures now available for animals. Vets can achieve much more today than they could a decade ago, but it is interesting how the cost of the average pet insurance claim has grown by 75% in that time. Is this due entirely to medical advances?
One of the most insightful takeaways from ABI’s research is that most pet owners do not buy insurance at all. Barely one in five cats is protected by insurance and only 32% of dogs are covered. The market can still grow significantly if the public perceive pet insurance delivers value for money.
The bad news for insurers is that the cost of claims is increasing faster than the cost of premiums. The average claim amount has gone up by 75% in the last ten years while the average premium has only risen by 50%. This means that insurance companies are faced with the choice of either cutting the margins on policies or becoming increasingly uncompetitive in a market where there is plenty of choice.
Using digital technology to reduce costs and simplify tasks
There is an alternative. Digital technology can help insurers transform the efficiency of their operations, enabling them to be both competitive on premiums and deliver outstanding customer service.
One obvious opportunity is to effectively integrate all aspects of the insurance process – from delivering accurate quotes to collecting premiums, underwriting and claims management – in one digital process. This reduces both time and the need for human intervention in the process and increases efficiencies. This in turn can provide a faster process for claims management, meaning customers receive payment faster and more accurately.
Insurers that collect large quantities of digital data can also use this to drive better business decisions. Insight from data collected on claims can help identify animals - or even breeds - that are particularly susceptible to certain illnesses or injury. This enables insurers to deliver more personalised and accurate quotes based on the actual likelihood of a pet getting a certain illness. Furthermore, insurers can then offer pet owners that take preventative measures a more favourable offer, reducing the likelihood of a claim and ensuring that pets stay healthier. This offers a more bespoke and accurate insurance proposition.
Over the last decade, since the growth in popularity of the insurance aggregators, the public has become increasingly savvy about the insurance they buy. Most now look beyond headline price to consider issues such as what exactly is covered by a policy and other factors such as the excess or customer service reviews.
No pet owner wants to be in the unfortunate position of having to make a claim, but it is important the process is managed quickly and effectively, while providing the required reassurance. Smarter deployment of digital technology can help insurers provide a more streamlined and effective service to customers, rapidly reducing cost and providing a more accurate assessment of risk, while also delivering a quicker and more accurate response to claims management.