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The Pet Insurance Market: Smarter Pricing for a Market Coming of Age

Earnix Team

14. December 2022

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Growing rapidly and attracting increasing interest from regulators, pet insurance is coming of age as a bona fide personal insurance line. Yet while many insurers in more established lines like motor, home and life are adopting intelligent rating and pricing tools to enable smarter underwriting, most pet insurers still rely on rudimentary models and processes. This is a huge opportunity missed.  

Pet Insurance Industry: A market on the rise

According to Allied Market Research, the global pet insurance market was valued at $4.5bn in 2020 and is projected to reach $16.8bn by 2030 at a CAGR of 14.3%. In the US, gross premiums rose over 30% year-on-year in 2021 to $2.8bn, according to the North American Pet Health Insurance Association (NAPHIA) and have risen 24.2% annually on average over the last five years.  

With many pets uninsured, there is huge scope for further growth. According to 2021 data from the National Association of Insurance Commissioners (NAIC), roughly 68% of US households owned a pet but only 2% had pet insurance. In many other markets, pet insurance is barely adopted at all. However, awareness of the value of pet insurance is increasing as the cost of treatment and medical bills have soared in the past decade – a trend being accelerated by global inflation.    

Pet ownership is also on the rise (up 28% in the US in 2021, according to NAPHIA) and this trend is expected to continue. So too is the growth and viability of the pet insurance market in the US, that the NAIC passed the new Pet Insurance Model Act in August 2022 to establish appropriate consumer protection regulations for the industry.  

Intelligent Pet Insurance Operations

In a fast-changing world, insurers in all lines of business cannot afford to stand still. In a recent report, Accenture highlighted the need for insurers to extract value from data and thread intelligence into their operations to meet tomorrow’s performance aspirations. Failing to do so creates a real risk of falling behind competitors and not meeting customer expectations, the firm warned.  

According to Accenture, 83% of insurers say data is in wide use or in use at scale in their operations and 57% expect to use analytics with diverse data by 2023, however, only one in five uses analytics at scale today, “signaling a daunting gap between today’s reality and tomorrow’s aspirations”. 

 “Insurers need to evolve what’s happening on the inside. Fast,” Accenture said. “With intelligent operations, insurers can elevate decisions and boost profitability and efficiency gains today. It’s about reaching new levels of operations maturity to choose smarter, act faster and win sooner. It’s about becoming future-ready.”  

For pet insurers, a major opportunity lies in modernising their approach to pricing and rating. Despite increased regulatory scrutiny, pet underwriters still have relative freedom in how they choose to segment risks and price, yet most employ rating tools that sit on Excel spreadsheets and only consider a handful of basic variables such as pet breed, age and country.  

This means they do not gather enough data to differentiate between a good risk and a bad risk, and often end up on the hook for claims they shouldn’t be paying. Bringing more granular data into rating algorithms – from local weather or crime data to nearby pet walking facilities or customer credit scores, for example – and intelligently analysing it is essential to properly assess risks, generate accurate prices and improve combined ratios.  

As well as driving up profitability and risk quality, managing the rating process through a dynamic central pricing and rating engine streamlines workflows and drives efficiencies in the underwriting process, meaning more resources can be allocated to growing the business and developing the kind of personalized digital experiences and value-add wraparound services that appeal to today’s customers.    

It also helps underwriters bring products to market much faster and respond to changing market conditions by enabling them to implement rate changes (and underwriting rules) in minutes rather than days, weeks or months. In a world of escalating costs, economic volatility and rising customer expectations, insurers in all classes of business need this kind of agility, yet legacy systems are often the Achilles heel as they don’t enable the data science being done behind the scenes to be operationalised quickly enough.  

Insurers in motor, home, life and health are increasingly embracing technology to enable intelligent underwriting software and dynamic pricing. While pet insurance may still be a long way off those markets in sheer volume, there is no reason why pet insurers shouldn’t be using the same tools and reaping the same rewards. Those who seize on the solutions that are already in widespread use today will gain a competitive edge over slow movers and position themselves for sustainable growth in the years ahead.

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Earnix Team