Pet Insurance in the US: A Flawed Industry?
While the North American pet insurance industry presents a picture of growth, with increasing numbers of insured pets and rising sales revenue, some long-time observers are voicing serious concerns. These critics see a sector that, even after four decades, is struggling to succeed, and may be, in fact, faltering.
Despite 6.25 million dogs and cats being insured in the United States and Canada, the percentage of pets covered remains remarkably low, hovering between 3% and 4%. This meager market penetration prompts strong criticism. Dr. Kent Kruse, who spent nearly two decades in the industry, including time with Veterinary Pet Insurance, the first U.S. pet insurance company, stated, “Pet insurance is definitely a failure.”
Dr. Doug Kenney, a retired practitioner, pet insurance blogger, and podcaster, echoed this sentiment, remarking, “Any other industry that has been around for 40 years and has a 3% market penetration would be considered an abysmal failure.”
Dr. Frances Wilkerson, who has maintained an independent online guide to pet insurance since 2009, agrees. Her primary concern is the sharp increase in premiums, especially when considering the small proportion of pet owners who have coverage.
The North American Pet Health Insurance Association (NAPHIA) counters this gloomy view. According to Kristen Lynch, the group’s executive director, “Overall, the industry has experienced roughly a four-fold increase in penetration over a handful of years, which is significant for a non-compulsory (or voluntary) insurance product.”
Rising Premiums and Policy Nonrenewals
Doubts about the pet insurance market aren’t limited to veterinarians. A recent webinar hosted by the Society of Actuaries, titled “Pros and Cons of the Current State of Pet Health Insurance,” highlighted the industry’s challenges. Laura Bennett, co-founder of Embrace Pet Insurance, and now an independent consultant, offered a blunt assessment: “It is the type of business that I always tell people don’t get into. It is hard to make money in the pet insurance business! Pet insurance is much more complex than you realize.”
The sector has recently faced negative publicity due to rapidly increasing premiums. Between 2022 and 2023, the annual premium rose by an average of 11.4% for U.S. dogs with policies that cover preventive care, and 5.6% for dogs covered for accidents and illness. In Canada, these increases were even more significant: 13.5% for broader “wellness” coverage and 15.6% for accident and illness.
These averages, while weighted by factors NAPHIA keeps confidential, can be misleading. Industry insiders say that premiums vary widely based on factors such as geographic location, breed, and the pet’s age. Individual policyholders have reported percentage increases far beyond these averages.
Nationwide’s Policy Drop
Public scrutiny of the problems within the domestic pet insurance market intensified in mid-June when Nationwide, considered the largest pet insurer in the country, disclosed plans to drop 100,000 policies over the next year.
In a statement, Nationwide said these nonrenewals were “not associated with the pet’s age, breed or prior claims history.” They cited “inflation in the cost of veterinary care and other factors” for the decision. When contacted for further details, Nationwide simply referred back to its original statement.
Lynch, the trade association executive, stated that the 100,000 policies represent “a relatively small percentage of policies for an insurance category of this size.”
However, this offers little solace to affected policyholders. This action spurred the creation of a private Facebook group called “Dropped by Nationwide Pet Insurance Whole Wellness? Join Us!” which has drawn 1,500 members.
Veterinarians are witnessing the impact on pet owners. At a clinic in Northern Virginia, where an estimated 10% of clients have pet insurance, Dr. Erika Im is aware of two clients who lost their Nationwide coverage. Both own cats with chronic kidney disease. Im noted that while the owners can afford ongoing management of the condition, paying out-of-pocket for major issues would likely be a stretch. She explained, “If a dog needs surgery for a serious condition like cancer, their total bill can be easily over $10,000 once costs such as the CT scan are counted. It’s not something that somebody can easily pay.”
Im has begun to question the advice she’d always given clients: that they should get insurance for their pets when they are young. She believes that Nationwide has broken the basic agreement of pet insurance, adding that it’s “ruining people’s trust in the idea.”
Bennett said that Nationwide’s move was “a shock to the industry” that could negatively impact all pet insurers. She states, “People might be looking at the pet insurance industry as a whole and think, ‘Is this how you do it? Why would I pay you money if, when I need you most, you won’t be there?'”
Challenges and Consolidation
One difficulty is the inability to obtain comparable coverage from another insurer due to pre-existing conditions. A pre-existing condition is something that developed after the pet was first covered. State insurance regulators are being contacted by affected policyholders to lodge complaints.
Trupanion, a publicly traded company, offers financial performance disclosures. Trupanion has grown its sales revenue since its 2014 listing, but is yet to turn a profit. CEO Margi Tooth attributes this to an intentional strategy: ““It has always been our guiding mandate to maximize growth of insured pets in a market that is so underpenetrated,” she said. “… [W]e have made a conscious decision to reinvest the money generated from our existing book of insured members to grow the category.”
One financial challenge to pet insurers is the rising cost of veterinary services, which has increased faster than overall inflation. Bennett explained that another factor is the consolidation of veterinary practices by private equity firms. “Prices go up when private equity comes in,” she said. “They are in it to make money, so yes, they typically increase fees.”
JAB Holding Co., a German investment firm, has been a significant player in acquiring veterinary practices worldwide and now owns several North American pet insurance brands. This has drawn the attention of U.S. senators Elizabeth Warren and Richard Blumenthal, who have outlined their concerns about JAB’s market power.
A Comparison to International Markets
In contrast to the US, pet insurance is more successful in some other countries. Sweden has the highest adoption rate, where 92% of dogs, 75% of horses, and 50% of cats are covered by pet insurance.
Bennett believes a key factor is a more flexible regulatory structure. Compared to the US, with its complex state-by-state regulations, this allows faster adjustments to premium rates and coverage options.
Potential for Growth
To increase the appeal of North American pet insurance, insurers might diversify their offerings and provide less expensive limited coverage options, according to Bennett and others. NAPHIA data demonstrates that policies, including preventive care, cost much more than ones that only cover accidents and illness for pets. For dogs, the more extensive coverage is upwards of $1,200 per year on average, compared with under $700 for accident and illness policies. Eliminating coverage for lower-cost issues, while fully covering costly serious conditions, could help to contain prices, according to some.
Wilkerson questioned whether the lack of profitability could mean the end of the current coverage options. Kruse noted that most practitioners are not looking for the additional amount of business to result from increased pet insurance.
It appears that the pet insurance industry is facing internal struggles and external challenges that could influence what is happening with the market now and in the future.
