Insurance Topics | Pet Insurance (2024)

Background

Last Updated: 10/18/2023
Pet insurance is similar to health insurance for humans. It includes exclusions, various levels of coverage, deductibles, and payment limits. Some carriers have different levels of coverage for the customer to choose from, while other carriers have one-size-fits all type plans. Most pet insurance companies exclude pre-existing conditions and hereditary or congenital conditions. Some insurance companies will not accept pets after a certain age and many companies have waiting periods before benefits begin.Pet insurance companies typically divide their productsinto3 maincategories: accident-only, accident and illness, and wellness coverages. Each level offers specific services that are covered and excluded and will vary by price.

Insurance policies are usually broken downby the type of pet being insured. Some companies allow the owner to choose their veterinarian. The actual monthly cost of the policy will depend on many variables, including the species of animal, breed, gender, age, location, and the coverages and deductible chosen. Most policies pay on a reimbursem*nt basis and are not transferable to other pets, but with written approval and consent, some policies can be transferred to new owners.

Reimbursem*nt methods can be slightly different among companies. Some companies use a benefit schedule, which reimburses policyholders based on the illness or injury and the coverage level chosen. Other companies reimburse percentages based on the amountspent by the policyholder. Although pet insurance is not for everyone,consumers who are considering it should do theirresearch. There are many online education centers dedicated to pet insurance which include policy and company reviews, term definition and explanations, and questions consumers should ask of themselves and the companies they are considering.

According to the 2021-2022AmericanPet Products Association's (APPA)National Pet Owners Survey,151.1 million, or 70% of,households in the U.S. reported owning a pet, and will spend an estimated$32.3 billion on vet care and products(pharmaceuticals and items purchased through veterinary clinics, excluding food and treats) in 2021,up from $31.4billion in actual costs in 2020.This is not a new trend; consumer spending on pet medical care has been consistently rising every year since 2001, the year APPA officially started collecting data.The rise in veterinary care spending comes at a time when sales of pet insurance policies are rising, as well.Highlights from the North American Pet Health Insurance Association (NAPHIA)2022 State of the Industry Reportshow the total number of pets insured in 2022reached5.3million, up from 3.1 million in 2020. Dogs continue to make up the majority of insured pets (80.1% vs 19.9% for cats). Aslifespans of companion animals increase, costs of veterinary care are likely toincrease for the consumer.This could be beneficial for the pet insurance industry in the future as more consumers turn to pet insurance to help manage preventive care, acute and chronic illness, and emergency medical care costs for their animals. Moreover, the data from NAPHIA shows consumers prefer these types of "comprehensive" insurance plans for their pets: In the U.S., 92.8% were covered by Accident & Illness plans or Embedded Wellness plans, 7% were Endorsem*nts (riders such as wellness or cancer treatments) while the remaining .2% were Accident Only plans.

Thecombination of a growing pet population and consumers willing to invest more in the health of their pet could createopportunities for insurtechs to enter this expanding market. In February 2020,insurtechcompany Lemonadeannouncedtheir intention to add pet insurance to their existing product lines and as of 2022, the product is available on their website for purchase.

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In April 2019, thePet Insurance (C) Working Groupwas established by the Property and Casualty Insurance (C) Committee and charged to review the NAIC White Paper,A Regulator's Guide to Pet Insurance, toconsider whether a model law or guideline wasneeded to create appropriate regulatory standards for the pet insurance industry. A request for Model Law development related to pet insurance was adopted during the NAIC 2019 Spring National Meeting to address issues such as definitions, disclosures, violations, producer licensing, preexisting conditions, reimbursem*nt benefits, and regulations for pet insurance. At the NAIC's Summer 2022 National Meeting in Portland, Oregon, membersvoted to adoptthePet Insurance Model Act. Key elements of the model law address pet wellness programs, preexisting conditions, consumer protections, and training for insuranceproducers. State adoption information for the model can befound here.