Navigating the rising costs and challenges of pet insurance

Pet insurance, once seen as a niche product, has become a major business line in UK general insurance, spearheaded by pet ownership – and the cost to owners of looking after those pets – rising dramatically in recent years.

For example, pricing consultancy Pearson Ham reported in March 2024 that average pet insurance premiums had climbed 21% since February 2023.

Yet rising premiums is just one of many challenges facing this line of business – it is also contending with claims inflation, customer dissatisfaction and systemic issues within the veterinary sector.

August 2024 figures from the ABI showed that claims incurred in the pet insurance market totalled £1.2bn in 2023 – a 20% increase on the previous year.

Sharon Brown, founder of the Pet and Equine Insurance Sustainability Network, told Insurance Times that high costs in the pet insurance market is still a “significant concern” for the industry, pointing out that the consumer price index (CPI) for veterinary and other services for pets has risen from 100 in 2015 to 167.1 in November 2024.

“Innovations in veterinary medicine have greatly improved the quality of care through advanced diagnostic tools and treatment options, but these advancements often come with higher costs,” she explained.

“The consolidation of veterinary practices, with independent clinics increasingly being acquired by larger corporate entities, has reduced competition and may also be contributing to price increases.”

The impact of this claims inflation is exacerbated by the fact that pet insurance has a higher claims frequency than many other major business lines.

So-called covered for life policies, for example, had a claims frequency of 43% in 2023, according to the latest FCA value measures data, published in August 2024. This is significantly higher than both motor insurance (10%) and contents insurance (3%).

Average claims payouts across all types of pet insurance products have also been on the rise in recent years, according to the aforementioned FCA information – most notably for maximum benefit policies, which rose by 15.8% over the course of 2023 to £733.

Another critical issue for this line of business is the rising cost of insuring older pets, something that is becoming an increasingly important issue given the spike in pet ownership during the Covid-19 pandemic – the Pet Food Manufacturers’ Association stated in March 2021, for example, that 3.2 million UK households acquired a pet since the start of the pandemic in 2020.

“Ageing pets typically require more medical attention, naturally increasing claims frequency and, consequently, premiums,” added Brown. “This creates a vicious cycle where premiums may become unaffordable at a time when owners need insurance the most.”

Brown said that solutions to this particular challenge could include incorporating wellness plans and preventative care into policies, similar to the ways such initiatives have been used in the health insurance space.

“This approach could help reduce claims frequency by maintaining pets’ health proactively,” she noted.

“Another possibility is the development of fixed for life premium products that distribute costs evenly across a pet’s lifetime, providing financial predictability for owners.”

Claims cover concerns

However, Brown believes that overcoming these myriad challenges in the pet insurance arena should not solely fall on the shoulders of insurers – she argued that the veterinary industry must also do more to combat the cost issues plaguing the market.

“The lack of standardised pricing makes it difficult for insurers to forecast claims and for customers to understand costs,” she said. “Establishing clear pricing benchmarks would benefit all parties.

“Standardised diagnostic pathways could also reduce unnecessary or overly expensive treatments, improving outcomes for animals while helping to control claims costs.”

The pet market also appears to be facing issues when it comes to offering value and good customer outcomes, with exclusive analysis of industry complaints data from the Financial Ombudsman Service (FOS) by market intelligence firm Insurance DataLab revealing a particular issue when it comes to the claims experience.

Of all the complaints relayed to the ombudsman over the course of H1 2024, around 61% related to claims being declined, compared to just 29% across all lines of business.

Brown said this could largely be attributed to a lack of understanding of what is and isn’t covered by a policy.

“Many customers struggle to understand their policies, leading to dissatisfaction when claims are denied,” she explained. “Premiums are rising faster than many owners can afford – particularly for older pets – creating a disconnect between costs and perceived value.

“Inconsistencies in claims processing, with some insurers excelling in efficiency while others lag, also affect the overall customer experience.”

Association support

To combat this expectation gap, Brown said that insurers need to do more to educate their policyholders.

“Improving outcomes will require better education and transparency,” she continued. “Insurers must clearly communicate the value of policies and proactively engage with customers to manage expectations.”

Brown setup the Pet and Equine Insurance Sustainability Network and the newly incorporated Pet and Equine Insurance Association in October 2024, to help the insurance industry in dealing with challenges hitting the pet market.

Initial steps Brown has taken as part of this include an upcoming insurance steering group meeting, which will formalise a framework for collaboration and action across the industry.

Brown said that this meeting “will establish the structure and priorities” for the association, while also “providing a unified platform to ensure the long-term sustainability” of pet and equine insurance.

“We aim to develop a deeper understanding of each stakeholder’s role, ensuring empathy guides our decisions and solutions,” Brown added.

The creation of a pet insurance focused association comes at a timely moment for the market, with pet insurance seemingly at a crossroads as it faces a perfect storm of rising costs, increasing claims frequency and customer dissatisfaction.

But, if closer collaboration and a renewed focus on transparency and innovation can be achieved via a new trade body, then there is an opportunity for the pet market to change for the better – improving outcomes for pets, their owners and, ultimately, the insurance industry too.

“Pets and horses are essential in supporting mental health and overall wellbeing, yet rising costs threaten this bond,” Brown emphasises.

“The insurance industry, the veterinary sector and policymakers must work together to create a sustainable model that balances affordability with access to high quality care.”

Insurance Times approached a number of pet insurance providers for comment on these themes, however all those contacted declined to comment.