Pet Insurance Rising In Down Economy

By Brian Hutchins

Much as the economic crisis loomed large in the election of Barack Obama as president, it also has sparked a heightened interest in pet healh insurance from pet owners and veterinarians.

Concerns about the economy, from Wall Street to Main Street, flared in September and October, and have brought to the forefront the idea of pet health insurance as a way to manage health costs.

A central issue is whether pet health insurance in general is a cost-effective way to manage veterinary costs during tough economic times.

Overall industry policy sales are continuing to grow, fueled both by an interest in managing those risks and a growing number of companies, including new players such as AIG-underwritten PurinaCare and Trupanion, marketing the concept and their policies.

Although more consumers are now willing to buy insurance policies, the number of insured U.S. pets is still less than 1 percent of all pets by most accounts.

The precise number of insured pets in the U.S. is not known—several companies do not report numbers due to proprietary concerns—but a couple of members of the North American Pet Health Insurance Assn. estimate that 750,000 to 800,000 pets are insured.

That’s up from the roughly 700,000 estimated U.S. policies in 2007, according to Packaged Facts’ “Pet Insurance in North America” market study published in May. 

That report predicted that revenue for the North American pet insurance market would grow annually between 25 and 35 percent for the next five years, to a $1.1 billion market by 2012.

Good Renewal Rates
Still, the economy’s effects on pet health insurance sales varies by insurance provider, with the more established players staying relatively stable despite the onslaught of new players and the newer players reporting the more rapid sales growth that would be expected from a fledgling business.

Perhaps most promising for the industry is strong and improving renewal rates, which providers say means that consumers are seeing value in pet health insurance and that companies are delivering that value.

“We’re seeing a slight slowing in new policies sales, but our retention rate has actually increased,” said Curtis Steinhoff, senior director of corporate communications at Veterinary Pet Insurance in Brea, Calif. “People who have a policy now are saying, ‘Now is the worst time for me to get a $3,000 or $4,000 vet bill,’ so they’re holding onto their policies in greater numbers.”

Potential new customers, however, may be viewing insurance as a luxury and are choosing not to add another expense given the uncertain economy, he said.

VPI is still growing and insured about 465,000 pets as of late October, Steinhoff said. He declined to provide more specific numbers for competitive reasons.

Also factoring into the slowdown of new policy sales is a more competitive marketplace, with at least 15 providers now in the market.

Similarly, Hartville Group Inc.’s sales were softer in the third quarter than the first half of the year, but not as soft as the company expected, said Dennis Rushovich, chief executive officer of the Canton, Ohio-based company. Hartville typically sees its strongest sales in the beginning of the year.

This year, the company opted not to conduct mailings and phone campaigns during the election season because the efforts would have competed with campaign literature and telephone calls. Similarly, the company doesn’t do much direct marketing in the fourth quarter because its messages might be lost amid holiday catalogs, he said.

Even with the sales slowdown, Rushovich said, the company insures more than 80,000 pets, up from 79,079 pets at the end of the second quarter.

Rushovich said the economy has been in a downturn for almost five quarters by his calculations, and the company’s first-half sales were very strong and above expectations.

Insurance sales typically pick up during down times, he said, because people tend to think more about what would happen if they lost a job or faced other financial challenges. Pet health insurance sales should act similarly, he said, depending on whether a pet owner sees the expenditure as discretionary spending or a necessity.

Also, the down economy’s full effect on pet health insurance will be difficult to fully understand until the current troubles are over, he said.

Fall Downturn
Although its sales are up year over year, Pets Best Insurance of Boise, Idaho, acknowledges a difference.

“Every month had been record-breaking until September and October,” said founder Jack Stephens, DVM. “People are just unsure. We are seeing some declines.”

In short, people were not making new financial commitments but the company’s retention rate went up, he said.

Those declines were month over month for September and October and possibly a temporary glitch. Dr. Stephens noted that preliminary figures indicated the company had two record sales days through the first five days of November and was back on a “rapid growth curve.”

The company insures more than 30,000 pets, he said.

With his long history in pet health insurance, Stephens, who also founded Veterinary Pet Insurance, has been through recessions. The pet insurance market leveled off then but came back quickly as people thought about how important their pets were to them, he said.

Other Options Available
Pets Best has seen an uptick in policy cancellations as consumers look to save money, Stephens said, but the company saved many accounts by switching them to its lower-premium insurance programs.

If the customer’s complaint is about Pets Best specifically rather than general money concerns, the company’s policy is to refer customers to the North American Pet Health Insurance Assn.’s website to find another provider, such as Trupanion of Lynnwood, Wash.

“I’ve been doing this for eight years and I’ve never seen a bigger urgency to get pet health insurance than now,” said Darryl Rawlings, chief executive officer of Trupanion, which began selling policies in the U.S. this year and is still getting state approvals. The company has been active in Canada for eight years as Vetinsurance.

Although Trupanion’s programs are new to the U.S. and offer unique features compared to other companies’ offerings, Rawlings attributes the good reception to the economy.

Most significantly, Rawlings said, MasterCard and Visa are his main competitors and are becoming less of an option for pet owners as credit lines shrink and consumers max out. Increasing numbers of consumers no longer have the option to put that unexpected veterinary bill on their credit card.

Also, with investments off sharply, retired pet owners living on a fixed income based on 401(k)s or home equity are finding their investment base and discretionary income down significantly, Rawlings said. This leaves those pet owners less able to handle unexpected veterinary bills and, presumably, more interested in financial products that would help manage those costs.

Rawlings said that with only 1 percent of pets insured in the U.S., he wasn’t worried about pet owners who might balk at adding a pet health insurance premium due to economic uncertainty slowing industry growth.

Anecdotally, Rawlings said that veterinarians, recognizing that pet owners are struggling, are talking more to their clients about pet health insurance in recent months. Veterinarians also are asking Trupanion about how to use its marketing tools more effectively. Practices are now more likely to hand insurance brochures to clients rather than merely put the brochures on a counter, he said.

While Rawlings said he couldn’t provide meaningful growth figures for the U.S. since the company is new to the market, its most recent quarter in Canada was its biggest ever. The Canadian economy has been relatively immune to the U.S. troubles, he said.

As of late October, Trupanion was approved in 30 states that represented about 80 percent of U.S. pets. Rawlings expected to earn approval in all states by the second quarter of next year.

Benefits of Marketing
With gasoline prices high and 401(k) plans falling, business is booming at Petplan USA, administered by Fetch Insurance Services Inc. of Philadelphia, with month-to-month double-digit growth through October, said founder, president and CEO Chris Ashton. Citing proprietary concerns, he declined to reveal specific sales figures. Fetch licensed the Petplan brand and program and began marketing it in the U.S. in July 2006.

“People are not asking if they can afford pet health insurance, but how they can afford not,” Ashton said.

In response to the economy, Ashton said, the company is doing more marketing, including on the Internet and to the veterinary profession. He also said the company is conducting, and getting more requests for, its lunch-and-learn programs for veterinary practices.

He acknowledged that some veterinarians don’t support pet health insurance, but he said the time has never been better  for veterinarians to promote it.

“We know people are putting off veterinary visits” in an effort to save money, he said. He also said that he has data, based on Petplan’s 25-year history in the United Kingdom and other markets, to show that insured pets are taken to the veterinarian more often, their owners become more bonded to the veterinary practice and the owners spend more money on more services than non-insured pet owners.

Likewise, VPI recently shifted its marketing to emphasize an economic message. To pet owners, that message is about how pet insurance can help them manage veterinary bills.

To veterinarians, the message is about how insurance can boost practice revenues. VPI is encouraging veterinarians to promote veterinary pet health insurance, Steinhoff said, noting the company has data showing that insured pet owners visited the veterinarian more often, were inclined to spend more once there and were more likely to follow veterinary recommendations than non-insured pet owners.

Well-Informed Owners
PetPartners Inc. of Raleigh, N.C., has been “surprised by just how consistent people have been” in their insurance purchasing amid the economic challenges of recent months, said Linda Bell, the company’s chief marketing officer. The company, whose brands include the American Kennel Club Pet Healthcare Plan and the Cat Fanciers Assn. Pet Healthcare, has seen a consistent level of new sales and renewals and an upward trend in claims costs.

Anecdotally, Bell said the company perceived an uptick in interest at its booth at a couple of recent dog shows.

It also has noticed consistency of use among its various plans, ranging from wellness plans to accident-only policies, and various deductible options, Bell said. The company’s retention rates remain strong, she said.

Bell said people are now more aware of pet health insurance because of the additional players in the market and a related increase in overall promotional activity, especially on the Internet, where online shopping for pet insurance is relatively simple.

People also are more aware of veterinary medical advances available for their pets, and the higher costs of those procedures, because of television programs, Bell said.

She said the company is seeing strong sales in California and Florida—markets where home price declines have been the sharpest in the nation and consumers presumably under more pressure. <HOME>