Pet Insurance in the US: A Sector in Crisis?
The North American pet insurance market presents a complex picture. While industry reports tout increasing coverage and revenue, many veterinarians with years of experience are sounding the alarm, suggesting the sector is struggling to find its footing after four decades.
Despite over six million dogs and cats insured in the United States and Canada, the percentage of pets covered remains low, hovering between 3% and 4%. This limited market penetration has led Dr. Kent Kruse, who spent two decades in the industry, to declare, “Pet insurance is definitely a failure.”
Dr. Doug Kenney, another long-time industry observer, echoes this sentiment. “Any other industry that has been around for 40 years and has a 3% market penetration would be considered an abysmal failure,” stated the retired practitioner and pet insurance blogger. Dr. Frances Wilkerson, a consumer advocate with an independent online guide to pet insurance since 2009, is particularly concerned about escalating premiums.
However, the North American Pet Health Insurance Association, or NAPHIA, offers a different perspective. Kristen Lynch, the group’s executive director, noted via email that “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.”
Complexities and Challenges
Even those within the industry express doubt. Laura Bennett, co-founder of Embrace Pet Insurance and now an independent consultant, bluntly remarked at a recent Society of Actuaries webinar: “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 faced criticism due to rising premiums. NAPHIA data reveals average annual increases of 11.4% between 2022 and 2023 for U.S. dogs with policies that cover preventative care and 5.6% for those just covered for accidents and illness. In Canada, the increases were even sharper, at 13.5% and 15.6%, respectively. Cat policy increases also showed double-digit rises.
These averages, determined by factors NAPHIA keeps private, can be misleading due to sizable premium disparities caused by variables like geographic location, breed, and the age of the pet. Many policyholders have reported considerably higher percentage increases than NAPHIA’s average data.
Policy Nonrenewals and Eroding Trust
Further complicating matters, Nationwide, the largest pet insurer in the U.S., announced in mid-June that it would not renew 100,000 policies over the next year. In a statement, Nationwide indicated the nonrenewals weren’t related to the pet’s age, breed, or prior claims . Rather, the company cited “inflation in the cost of veterinary care and other factors” for their decision.
This decision has triggered a strong reaction. A private Facebook group, “Dropped by Nationwide Pet Insurance Whole Wellness? Join Us!” was created and quickly amassed 1,500 members.
Veterinarians are witnessing the impact firsthand. Dr. Erika Im, working at a Northern Virginia clinic, estimates that about 10% of her clients have pet insurance. She is aware of two clients, both cat owners with aging pets suffering from chronic kidney disease, who lost their Nationwide coverage.
“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,” Dr. Im explained, “It’s not something that somebody can easily pay.”
Dr. Im has started to question her previous advice to clients to purchase insurance when their pets are young, given the recent premium hikes. “It seems like this big pet insurance company has broken the basic promise of pet insurance, and it’s ruining people’s trust in the idea,” she stated.
Laura Bennett, the actuary, said this move has shocked the industry and might make people question the broader pet insurance industry. “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?'”
Limited Options and Market Dynamics
One of the key challenges faced by affected pet owners is the difficulty of securing comparable coverage from other insurers due to pre-existing condition exclusions. Pre-existing conditions are not covered by any pet insurers which can be an unpleasant shock for many pet owners. (In contrast, human health insurers must cover pre-existing conditions.).
Trupanion, a pet insurer traded on the stock market, provides insight into the financial performance of the industry. The company has seen revenue growth since its 2014 listing, but remains unprofitable after factors such as claims are taken into consideration. Trupanion 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 stated. She also stated that Trupanion would not engage in policy cancellations.
According to Bennett pet insurance becomes increasingly costly over time for insurers, as the probability of claims increases. Many policyholders, notably those whose pets stay healthy, often cancel their policies after the introductory period, leading to a high industry lapse rate of 20% to 30%. This leaves insurers paying claims on generally less healthy pets, which pushes up premiums.
The cost of veterinary services, rising faster than inflation, is also a significant driver of premium increases. Rising pay and workforce shortage and new enhanced diagnostics are all factors. Also, according to Bennett, “Prices go up when private equity comes in. They are in it to make money, so yes, they typically increase fees.”
JAB Holdings Co., a major investor in veterinary practices, has further consolidated the market, spending billions on pet insurers. U.S. senators Elizabeth Warren and Richard Blumenthal have expressed concern about this market concentration, sending a letter to JAB executives outlining their concerns and inquiring about their operations.
International Comparisons and Future Directions
Pet insurance is far more popular in other countries. In Sweden, for instance, 92% of dogs, 75% of horses, and 50% of cats are covered. In the U.K., some 30% of pets are insured, a number boosted by more flexible regulatory practices. Bennett noted that while you need to create 51 versions of your product to be compliant with requirements, the UK “allow[s] you to market your product [and] change the pricing on a product for the same dog by the minute [in online quotes]. … It allows for things like offering incentives for buying insurance. None of that is allowed here.”
To increase the appeal of pet insurance in North America, Bennett and others suggest offering a more diverse range of plans, including lower-cost options with limited coverage. NAPHIA’s data indicates a substantial price difference between policies, which can exceed $1,200 and $700 in the US and Canada, respectively. Wilkerson, the veterinarian, is wary of diminished coverages. “Maybe there’s no product here,” she ventured. “If there’s no way to make this a win-win — if you can’t give pet owners what they need to cover costs and you can’t make a profit — what does that tell you?”
Kruse, who worked in the pet insurance industry for 20 years, concluded that there are “a lot of competing factors [against pet insurance] when you look at the broad spectrum of things. It’s a dilemma.”
