Daily briefing: Tuesday - Animal attraction

There’s a £2.5bn opportunity to exploit in the pet insurance market, a Defaqto report reveals today. So what’s stopping brokers and insurers from setting up camp in this space? Defaqto’s study may well have highlighted the main barrier: it’s a turbulent market.

There are currently 86 pet insurance providers in the market. The challenge for brokers would be to shake off established players in this market, but it hasn’t deterred some from trying. The number of new providers in the space increased 14% between 2008 and 2011 as a total of 23 new providers entered against a backdrop of 11 withdrawals.

However, the reason for so many withdrawals could be the reduction in capacity among UK-based insurers.

Exits and entrants

AXA Insurance has the largest pet insurance market share, underwriting 32% of business. AXA’s position was boosted by the exit of Ageas (then Fortis) in 2009. Fortis had around 22% market share before its withdrawal, underwriting almost a quarter of all pet insurance policies.

But the market has seen a large reduction in capacity in the past three years and it now has fewer underwriters, despite the number of products increasing 28%, Defaqto said. Some of those products will be underwritten by new capacity providers in the shape of the largely unknown overseas trio: Agria International Forsakring in Sweden and Gibraltar-based firms Red Sands Insurance Company (Europe) and Ultimate Insurance Company. These three insurers now underwrite more than a quarter of all pet policies, while most UK insurers have seen their market share fall or remain steady.

Good prospects

Defaqto notes that should one of the major underwriters follow Ageas and decide to withdraw from the pet insurance market, it would have a major impact on distribution as well as “serious consequences” for consumers. “Existing underwriters would see an influx of new business entering the market, which may not be able to be catered for from a capacity and profitable underwriting point of view,” Defaqto stated.

Pet insurance could be an opportunity for a good niche broker, as consumer understanding of the products is relatively low. In May, Hastings Direct launched a new pet insurance offering and last year RBSI said it had a “renewed focus” on growing its pet business. But for now it’s difficult to envisage anyone unlocking the chest to that £2.5bn pot of gold in this rapidly changing market.