Chris Blatchly, Chief Digital Officer & Consulting Leader for Insurance, Cognizant takes an in-depth look at pet insurance and how it is changing.
In the midst of COVID-19, puppies and kittens have emerged as go-to companions to get us through the extended public healthcare crisis. This is one important reason pet insurance is touted to be the next hot growth segment for personal insurance carriers, as the global market is projected to surpass $10 billion by 2025 and grow 6.7% annually.
With the market evolving at such a pace, there are some core trends and themes that insurers should keep in mind as they look to keep up with the quickly evolving market and changing consumer habits.
Customer dynamics and disposition
The customer landscape has changed for the pet insurance industry, with millennials now the largest segment of pet parents. They own more pets (about 35% of total pet ownership) and spend more on their pets than any other generation currently, serving organic foods, buy flavoured medications, hire services, host pet parties and even take their pets on holiday. They also lead the charge in tech adoption. As they have grown up in an increasingly digital world, they expect quicker and more efficient service from insurance providers, and any other service provider for that matter, than ever before.
Such factors highlight the demand for customer-centric services within the pet insurance industry, that include personalised, nurturing communications and an interactive, immersive experience.
The market for pet tech
Pet-oriented technologies (pet tech), such as wearables, are addressing increasing concerns around pet health and security. The pet tech market includes activity monitors, GPS trackers, RFID sensors and accelerometer sensors, among others.
Wearable technology has already demonstrated value in the life and health insurance space, so it is only a matter of time before it makes deeper inroads in the pet insurance market too.
The opportunities for pet tech are vast, from automated food dispensers and climate-controlled pet houses to pet doors with facial recognition. These types of devices and sensors help support a data-driven approach to underwriting and claims processes.
Innovation by insurtechs: seven key themes for next-gen pet insurers
Digitally native companies, known as insurtechs, are already bringing new capabilities to the pet industry, with a focus on enhancing the customer experience. Their primary focus in pet insurance is in three areas, the first being direct to customer distribution and the second in the digital claims processes, with a wave of emerging companies, such as Petplan, providing innovative digital experiences.
The third focus is in new solutions, with digital solution providers looking to collaborate with insurers to enhance the customer experience for those insured through value-added services in partnerships with insurers. For example, Figo Pet Insurance offers the Figo Pet Cloud – a cloud-based service that enables capabilities like real-time pet GPS tracking, medical records management and mobile claims filing.
However, the rise in millennial pet owners and the growing use of pet tech wearables will be key drivers for future decisions and bring forth a new range of considerations, outlined further below, which will lead to seven key themes that insurers should keep in mind as they plot their pet strategies.
1. Change when, what and how pets are insured
Some consumers might view pet insurance as costly and confusing. And they would not be entirely wrong, as NBC’s Consumer Man concluded that pet owners might pay more in premiums over time than they would pay for medical bills directly, in certain cases.
This presents an opportunity for insurers to create compelling, innovative product offers, wrapped in a personalised omnichannel experience. For example, risk-based or pay-as-you-live policies, where additional premiums or discounts are calculated based on the pet’s lifestyle as measured through wearable sensors or other activity-monitoring devices.
With such models, insurers can underwrite risks previously deemed uninsurable and offer point-of-need prices.
2. Look beyond traditional insurance
A digitally enabled approach to product innovation can lead to new business models, such as peer-to-peer (P2P) insurance.
Millennials share many common interests in various social networks and they generally have a higher risk tolerance than older age groups, which suggests they would be open to joining online communities. P2P insurance leverages the power of social networks to reimagine the very old concept of a mutual insurance company. Social networks allow like-minded people to easily find each other and then pool their premiums to fund a pet insurance company.
Other approaches to consider include cross-selling complementary services. Millennials are more open to buying or using adjacent or complementary non-insurance services/products from their insurers, as demonstrated by their adoption of wellness offerings. For example, customers of Embrace can add onto the company’s Wellness Rewards plan to get reimbursed for the pet’s routine care or preventative steps to avert emergencies.
3. Change how products get to the market
There are three key distribution methods that insurance providers should consider.
The personal insurance space has seen a shift from purchasing insurance from agents and brokers, towards buying directly from the insurer itself, as customers embrace ecommerce and as products become simpler. With similar trends driving the pet insurance space, it is inevitable that pet owners would turn toward the direct-to-consumer (D2C) model. The recent success of pet-care comparison sites like Chewy or PetSmart is an early indicator of this emergent trend. Furthermore, millennial consumers do not respond well to traditional advertising messages. They expect their insurers to connect with them through their preferred digital channels. Pet insurers should therefore look to build trust and connect with millennial customers through a tailored digital marketing strategy.
Finally, insurers should look to deliver extra value by collaborating with the other members of the pet care ecosystem: retailers, veterinarians, employers, animal shelters, breeders, pet health payment providers like pet credit cards, and pet care savings plans. By partnering with such channels, insurers can better establish the true value of pet insurance and achieve more revenue and market penetration than solo efforts.
4. Transition from customer satisfaction to customer delight
With the rise of millennial customers, pet insurers are increasingly impelled to differentiate through an enhanced customer experience. However, capturing the attention and loyalty of this segment can be challenging.
Insurers need to simplify and digitise customer journeys across digital channels, and offer customers a 360-degree selection of value-added services beyond mere insurance. For pet insurers to accelerate this shift requires a human-centred design perspective. This involves identifying the key stakeholders and understanding what is important to them when they buy their pet insurance to personalise their insurance offers. .
5. Shed the legacy
Legacy core systems of existing pet insurers were built, patched and upgraded to support traditional manual processes. These aging systems are bound to affect the flexibility and scalability that are required for success. Insurers should reimagine and modernise their core systems, rules and processes to promote flexibility, agility, innovation and speed-to-market. The “core” of this effort should revolve around business capabilities such as flexible configuration of products and automated quote generation, as this will ensure that the derived technical capacities will best align with business outcomes.
6. Unlock the power of data
Pet insurance carriers can accelerate their digital evolution with advanced artificial intelligence (AI), which will enable them to automate core capabilities in new ways. For example, intelligent process automation (IPA) will enable the direct issuance of low-value/low-risk policies and the straight-through processing of low-value claims. IPA will also help integrate optical character recognition, intelligent character recognition and deep learning technologies. Some examples include reading unstructured scanned medical bills and intake claim documents, and creating an automated first notice of loss.
AI will also enable machine learning-based decision support for underwriters and claim adjustors and, when coupled with intelligent automations, will allow carriers to continuously mine case and claim data to identify fraud and security risks in real time.
7. From indemnification to loss prevention
Finally, another potentially strong differentiator for pet insurers is loss prevention services. Pet owners’ two overriding concerns are their pets’ health and their security. One way that pet insurers can continuously engage with their customers and better promote safety are device- or sensor-driven alerts. By reducing injury claims, this can in turn translate into premium discounts. The growing use of devices and wearables provides a great opportunity for insurers.
By enabling their systems to integrate with third-party wearable-device data, pet insurers will gain significant insights. They can continuously monitor these data streams and pass contextual recommendations to the pet owner to help improve their pet’s health. Doing so means a proactive approach to reducing probable claim losses, versus the traditional reactive approach.
Tomorrow’s market leaders
The pet insurance market is ripe with significant untapped opportunity as evidenced by changing customer dynamics, the advent of pet technology and entry of insurtech players. Insurance carriers that take advantage of these developments to innovate with new customer-centric insurance products and services, by driving a holistic digital strategy, will be tomorrow’s market leaders. This journey will not be easy, given the challenges of updating legacy processes, modernising archaic systems and changing consumer behaviours. Designing a lean, cost-effective and digital-enabled operating model is critical, as insurers reimagine the future of pet insurance.