Photo courtesy of Jordan benShea
Pet insurance costs for Zoe have more than quadrupled since 2015, to $258 month. The price to cover the 12-year-old dog rose 70% this year alone, according to her owner, California resident Jordan benShea.
Prices for pet insurance are on the rise — by more than 50% for some pet owners — amid a spike in demand for veterinary care that insurers say is fueling higher-than-expected claims costs.
The price hikes have at least one larger insurer bracing for a loss of customers, and threaten to slow the uptake of pet insurance in the United States, where about 2% to 3% of dogs and cats combined have coverage.
Owners of veterinary practices have for years pinned rising demand for their services on the "humanization" of pets increasingly regarded as family members. Veterinarians have found themselves particularly stretched recently by an apparent pandemic pet boom. At the same time, inflation has been running rampant almost everywhere, as supplies of goods and services fail to keep pace with pandemic-recovery demand.
The extent to which premium increases are being felt across the industry isn't entirely clear. The North American Pet Health Insurance Association (NAPHIA), a trade group, still is compiling 2022 data.
Nevertheless, Kristen Lynch, executive director of NAPHIA, acknowledges that rising demand is pushing up prices for veterinary care and insurance. "While we don't know how this trend will impact take-up of coverage at this point, an increase in premiums likely corresponds to increases in veterinary costs and frequency of treatment in the marketplace, and that makes a case for why pet insurance is valuable and needed in the first place," she said in an email.
At least one insurer has disclosed the extent of its pricing changes. Trupanion, one of the biggest publicly listed pet insurers in the U.S., expects its premiums to increase by an average of 15% in the first quarter of 2023 year-over-year, rising to 18% by year-end, its executives said on an earnings call last month.
Trupanion expects to lose customers as a result, the company's president, Margi Tooth, confirmed to the VIN News Service in an interview. Still, she said, the price increases will help the company honor its pledge to pay out in claims 71 cents of every dollar it collects in premiums, making its product more attractive in the long run.
Tooth said larger-than-typical premium increases are happening across the industry. "To support the payout ratio that every insurer has, there isn't anyone out there that wouldn't be needing to increase their prices now," she said. "The pricing increases seen in 2022 were unprecedented in terms of the frequency and also the severity ...."
Veterinary professionals, Tooth said, finally are getting recognition for their hard work during the pandemic in the form of higher pay. "We've been saying for years that the veterinary industry needs to price to be able to pay for the cost of labor — there is a labor shortage," she said. "I think the trend in the broader economy, where inflation is rising, has allowed salaries for veterinary professionals to rise more comfortably than in prior years."
Price hikes can differ by customer
Pet owners' experience of insurance can vary substantially, depending on their pet's age and breed; the type of policy they bought; and where they live. Social media is dotted with posts from people complaining of eye-watering rises in their premiums. One customer of Nationwide, the biggest pet insurer in America, told VIN News that the price of coverage for her mixed-breed dog, Zoe, jumped 70% this year alone.
"Last year, I paid $152 a month, and then this year, it went to $258," said Jordan benShea, of Santa Barbara, California.
BenShea is executive director of the VIN Foundation, a nonprofit founded by the Veterinary Information Network, an online community for the profession and parent of VIN News.
Annual letters from Nationwide show benShea took out a policy for Zoe, now 12 years old, in 2015 for $57.80 per month. The cost crept higher each year, reaching $85.80 in 2018 when benShea switched to a different Nationwide product. The following year, the cost jumped 39% to $119.59. Over the full eight years, the premium has quadrupled, and then some.
Zoe is in great health, benShea said, with a claims history that includes regular annual checkups, three bladder infections, a chipped tooth and the removal of a foreign body from her paw.
When benShea called Nationwide to ask about the 39% increase in 2019 (as no explanation was given in its letter), she was told that veterinarians were charging more, she said — a reasoning she suspected was an exaggeration at best. As for this year's 70% hike, benShea said she was told her type of policy, the Nationwide Whole Pet with Wellness Plan, was an old product that no longer was making enough money for the company.
Nationwide's chief pet officer, Heidi Sirota, acknowledged its premiums are rising, without specifying by how much. "The rising amount spent by many pet families on veterinary care has been well-documented in both trade and consumer media," Sirota said in an email. "The increase being driven by the advancement of services that can be offered, as well as increased prices across the board, is directly reflected in our claims costs, which results in adjustment to premiums."
BenShea is keeping the policy, given Zoe's age, but fears other pet owners facing hefty increases with no written explanation will drop their coverage. "It's too bad this approach to raising rates for pet owners has the potential to have the exact opposite impact I would think pet insurance companies want: Healthier animals, happier pet owners, and, for sure, happier veterinarians ..." she said.
Dr. Doug Kenney, a former practitioner in Tennessee who writes a pet-insurance blog, see prices escalating but notes that isolated increases of more than 20% for some unlucky customers have been happening for decades, often due to insurers redoing actuarial calculations for certain breeds and zip codes.
"I think that double-digit average premium increases are here to stay, unfortunately," Kenney said. "But those big increases from one year to the next are usually due to the company's actuaries just guessing wrong when setting premiums, or the company didn't update premiums often enough."
Age, too, can be associated with substantial price increases, often when pets turn 7 or 8, he added. "Therefore, some companies are starting to offer lower levels of coverage in lieu of higher premiums for senior pets."
A recent surge in mergers and acquisitions involving pet insurers also could be sending prices north, according to Dr. Frances Wilkerson, a Chicago veterinarian who maintains an online pet-insurance guide for consumers. The reason, she explained, is that takeover deals can trigger a change in an insurance company's underwriter, which could translate to higher prices for customers.
Whatever the reason for rising premiums, Wilkerson suspects large and sudden jumps may have been tempering growth in the U.S. pet-insurance market for years. "Rises of up to 10% I think most people can accept, but a sudden bump of 30% or more? That's something that people can't really plan for," she said.
The total number of dogs and cats insured in the U.S. rose 28% from 2020 to 2021, to 3,979,282, according to NAPHIA data. The growth, however, came off a relatively low base: NAPHIA estimates that fewer than 4% of U.S. dogs and fewer than 1% of U.S. cats were insured at the end of 2021.
Pet-insurance penetration rates are far higher in a few European countries — notably, the United Kingdom and Sweden, where upwards of 25% and 65% of pets are insured, respectively. Many reasons are offered for the low U.S. rate, such as poor initial product design in the U.S., and the immense power of human health insurers there.
"People in America already have a bad taste in their mouths about insurance," Wilkerson said. "So if they have a bad experience with pet insurance, they're going to be put off by it, absolutely."
Despite spiraling premiums and other impediments, insurers are optimistic that U.S. households will become more attracted to pet insurance to cope with the rising cost of care. Trupanion's Tooth, who hails from the U.K. and once worked for insurer Allianz there, is confident American penetration rates will grow over the longer term, as pet owners become acquainted with better-designed policies that pay out claims more reliably than they perhaps did in the past.
Veterinarians wary of insurers' power
Some veterinarians worry that more widespread coverage for pets could boost the industry's influence in setting prices for medical services — and make pet insurance as cumbersome and controlling as it is for human patients.
Veterinarians in Sweden, for instance, have told VIN News that ultra-high levels of insurance coverage there have improved standards of care but also pushed up treatment costs. Some veterinarians in Sweden have started charging clients an administrative fee to handle processing their insurance claims.
Veterinarians in the U.S., too, are feeling an increased administrative burden related to insurance, judging from a message board discussion on VIN.
Dr. Linda Hall of San Mateo, California, posted that clients have been asking her to explain what their insurance covers and to write two invoices to separate insured and uninsured procedures. Other clients have asked her to fudge the name of certain exams or procedures so their insurance policy will cover them.
Hall said in an interview that she hasn't heard any clients complain in recent months about rising premiums. "But I used to hear people saying they would pay $50 or so per month, and now I'll hear people saying $200.”
The higher prices haven't acted as a deterrent, in Hall's experience. She's seen a surge of pet owners obtaining pet insurance since early this year. "People will have to get pet insurance," she said. "The local specialty hospital prices are exorbitant — about $2,000 a day for routine cases, and any surgeries are easily in the $10,000-and-up range."
Dr. Kathy Henderson, in Alta Loma, California, similarly has noticed specialists' fees rising, and recommends pet insurance to her clients. She doubts, however, that pet insurers will become as powerful as health insurers for humans. "There are just some clients that are never going to go the whole nine yards," she said, noting that they can choose to skip full workups, forgo treatment or select euthanasia.
Henderson said she's encountered a lot of unhappy pet insurance customers, not so much because their premiums have risen but because they've failed to read or understand their policy's fine print, and are shocked when they discover certain procedures aren't covered.
"I try to explain to people that pet insurance is for big problems; for when your pet winds up in emergency care and the bill is $7,000," she said. (Henderson insures her own pets — two cats and a dog — through Trupanion. Since 2020, her combined premium cost has gone from $126.93 to $159.94).
Kenney, the pet insurance blogger in Tennessee, also isn't alarmed about pet insurers becoming immensely powerful, at least not yet. "I can see the fear associated with that, but we're a long, long, long way from that ever happening, with only 3% penetration," he said.
Pet owners seeking pricing flexibility, Kenney said, can consider policies that allow them to downgrade terms such as deductibles and reimbursements. For instance, a pet owner who's prepared to pay a higher deductible — the amount paid before the insurer picks up the tab — of, say, $1,000, could get a lower premium in exchange. Setting up a dedicated savings account, he added, might allow pet owners to pay for more out-of-pocket and downgrade coverage as needed.
He also advises pet owners to pick insurance that covers common conditions that could affect their pet, rather than shopping on price. Wilkerson makes a similar point, using automobile insurance as an analogy.
"If car insurance was structured like pet insurance, it would be 'We cover the back half of the car but we don't cover the front half, and if you want the headlights covered, it's an additional $7,' " she said. "Pet owners really need to educate themselves before they buy a policy."
Correction: Dr. Frances Wilkerson said takeover deals can trigger a change in an insurance company’s underwriter. A previous version of this story incorrectly used the term reinsurer.
VIN News Service commentaries are opinion pieces presenting insights, personal experiences and/or perspectives on topical issues by members of the veterinary community. To submit a commentary for consideration, email firstname.lastname@example.org.