Pet insurance is sometimes seen as an afterthought for insurance companies, particularly when compared to high-volume business areas such as home and car insurance. However, a range of factors are combining to make pet insurance a significant opportunity in the new decade, offering the most innovative insurance companies’ new opportunities to drive long term customer loyalty. Aquarium Software offers some useful insights here.
A MARKET DRIVEN BY AFFINITY
The extent to which people love their pets is extraordinary. Insurer Cirencester Friendly recently conducted a survey that showed double the number of people (33%) would take out pet insurance compared to those that have income protection insurance (17%). In 2018 market research company Mintel predicted a 25% increase in spending on pets over the next five years, bringing total expenditure in the UK to £1.7 billion. Pets are and will increasingly be, it seems, big business.
Despite this, penetration rates for pet insurance are still relatively low. According to the RSPCA there are around nine million dogs and eight million cats in the UK. Yet research from the Association of British Insurers (ABI) suggests that most pet owners do not buy insurance at all. In the UK, barely one in five cats are protected and only 32% of dogs are covered. This demonstrates the potential for the market to grow significantly in the future, particularly if pet insurance is perceived as value for money.
In the US the situation is even more stark (or better (in terms of opportunity) depending on your point of view). There are more than 100 million cats and dogs in the US, but a little over 2% are covered by insurance. Pet insurance is growing significantly in the country, with double digit annual growth rates. The US has historically been a country where litigation is rife and dog owners are waking up to the need to protect themselves against risk of litigation should their pet cause nuisance or harm to others.
INCREASING COSTS OF TREATMENT
Another driving factor is the cost of medical care for pets. The ABI research also revealed that the average cost of a pet claim was £793 in 2018, with pay-outs from insurance topping £785 million in the same year. As veterinary science continues to improve, vets can treat animals that they would previously have been unable to save. Advanced medical procedures such as MRI scans are now available to vets but come at a hefty cost. This should encourage more consumers to look to pet insurance to partly or fully mitigate the costs of medical diagnosis and treatment.
The bad news for insurers is that the cost of claims is increasing faster than the cost of premiums. The average claim 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.
THE ALTERNATIVE: TECHNOLOGY DRIVING EFFICIENCY
Naturally, most insurance companies do not want to make a choice between cutting margins and losing competitive edge. The alternative is the deployment of digital technology to help insurers transform the functionality and efficiency of their operations.
To date the insurance industry has been impacted but not disrupted by digital transformation. Digital processes have typically focussed on replicating non digital processes. So instead of buying insurance through a branch or broker, people purchase via a comparison site or company website.
This is digital replacement rather than the digital transformation seen more widely across the financial services sector.
Insurance is fundamentally a series of complex considerations that need to be analysed to deliver a fair and equitable policy. Technology is uniquely capable of helping businesses achieve two things:
• Automating complex but repetitive processes – such as creating letters, forms, documentation – to reduce the time it takes to achieve something and lower the number of human interventions required
• Capturing and storing data – which can then be used to identify patterns and trends that can help drive better and increasingly automated decision making
Historically the insurance industry has carried out both these tasks via human intervention. Digital platforms enable human effort to be focussed on analysing relevant insight from data to drive better customer service and more efficient operations.
DATA DRIVING INSIGHT
In the case of pet insurance this can be used to more effectively analyse data to identify trends that can help insurers offer more accurate and competitive premiums. Some dog breeds, for example, will be particularly susceptible to certain conditions. Insurers will already know this at a macro level – for example Labradors are very food focussed and this means they visit vets more often than other breeds having eaten something they should not. Insurers already take this into consideration when setting premiums for specific breeds.
However, detailed insight from analysing millions of claims can provide a far more granular and specific analysis of reasons for insurance claims. This might identify a specific ailment in a certain breed of dog that would otherwise not be easily identifiable. This can, in turn, enable insurers to suggest preventative medicinal treatments in advance, meaning pets spend less time at the vets (which is good news for pet owners and insurers alike).
Insurers currently have a good idea of the costs of any single vet procedure, enabling them to analyse claims and see if they are broadly within an acceptable margin of cost. Data analytics of millions of claims can help determine more granular aspects, such as whether a more costly procedure means less follow-up appointments, reducing the overall cost of treatment. Insurers may even be able to determine which vets have the highest success rates in terms of the life longevity of pets after procedures, enabling them to price the risk associated the more/less effective vets accordingly.
The most forward-thinking companies will even analyse this data geographically to highlight areas where risk is particularly high or combine internal data sets with external factors such as weather conditions or demographic changes to help uncover further insight.
The pet insurance market is, in many ways, still in its infancy. The potential for growth, particularly in the US, is significant. Yet the commercial environment is highly competitive. Digitising the entire insurance process delivers a significant short-term benefit in efficiency and helping companies become more competitive. In the long run the benefits are even more significant: enabling insurers to interrogate millions of lines of data to deliver a more accurate, effective, efficient and increasingly completely automated insurance process.