Although the pet insurance market poses opportunities for insurers and brokers, its challenges more closely align with the health insurance sector, rather than home or motor products
It is often said that Britain is a nation of dog lovers and that has never seemed truer than since the start of the Covid-19 pandemic.
Lockdowns, combined with a significant rise in working from home, have helped fuel a rise in pet ownership across the nation, with levels rising from 41% at the start of 2020 to 59% this year, according to data from Consumer Intelligence.
Further figures from the market research firm show that the UK pet insurance market has doubled in the past few years to cover around 7.7 million pets. However, four in 10 animal owners don’t have pet insurance, despite the average vet bill coming in at a hefty £822.
All this adds up to a considerable opportunity for personal lines insurers and brokers looking to diversify from the saturated home and motor markets. But pet insurance is markedly different to these sectors, with many nuances to consider.
Ian Hughes, chief executive of Consumer Intelligence, explained: “It is different from home and motor, but what is interesting is that it costs the same or more to insure some pets as it does to insure a car.
“That then creates something of a grudge. However, the fact there is no NHS for pets isn’t something people think about when that fluffy little bundle arrives.”
Consumer confusion
Although there is a clear opportunity in the pet sector, it does not offer the same volumes as home or motor.
In addition, there is the complexity of the product. While there are three main types of motor insurance and two for home insurance, the array of products and different levels of cover within the pet insurance market can be bewildering.
Hughes continued: “The number of people that don’t know what type of policy they have - whether it is accident only, time limited, maximum benefit, lifetime - it is confusing.
“It is different from car insurance. Car insurance is car insurance, but pet insurance is more similar to health insurance. Almost a quarter of people don’t know how much cover they have for vet fees. There’s a real confusion amongst consumers about what pet insurance is.”
This confusion can create issues relating to the FCA’s concept of fair value, which applies across all general insurance products - including pet.
Oke Eleazu, chief operating officer at pet insurer Bought By Many, said: “Fair value is a concept every insurance company should take seriously.
“Because price comparison websites play an important role in the purchase of pet insurance, often it drives a race to the bottom. There are products on those sites that are nothing like fair value, but they are cheap and people buy them.
“Price comparison websites are not the answer to this. They drive such a focus on price - this is what the regulator is already concerned about in home and motor. If you take the drive for the cheapest thing into pet insurance, you will come unstuck.”
Price sensitivity
Although Consumer Intelligence has recorded consistent inflation of the pet insurance market within its data, potential entrants to this market must also overcome challenges around pricing, which has complexities closer to the health insurance market than home or motor.
Eleazu added: “It is complex - you need a lot of data, but you don’t have the same amount of data you have with home and motor.
“The complexity is at a different level, with breed behaviours and illnesses all over the shop. Getting that right and then pricing it so you get a sustainable loss ratio is tough.”
In addition, there is a demand for a higher level of service in the pet sector, driven by people’s love of their pets, who are often seen as another family member. Innovation in pet insurance has seen insurers offering mental health cover, video vets and there are now trials underway to introduce pet pedometers, for example.
Hughes said: “People are less sensitive about price with pets, particularly when they see the vet’s bill, but they are sensitive about service and they are very sensitive about knowing that in that moment of stress when I need you as an insurer to be there for me, you are going to be there for me.”
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