The numbers are in, and like a dog’s tail, they don’t lie: Pet insurance is on its way to becoming a booming industry. On May 17, The North American Pet Health Insurance Association (NAPHIA) issued its long-awaited 2022 state of the industry report.
North America’s pet insurance sector exceeded $2.83 billion at year-end 2021, meaning the industry has more than doubled since 2018, as PropertyCasualty360.com previously projected.
In closely tracking the industry, this means that 2021 saw a near $700 million increase in total in-force premiums (up over 30.5% from 2020), and there are now 4.41 million pets insured across the United States and Canada — that’s a lot of protected pets.
However, considering that according to The Humane Society of the United States there are over 128 million homes in the United States alone that own pets — and some of them own multiple pets (and this does not count Canada), that means only a small fraction of the total number of pets in North America are presently insured. The fledgling pet insurance industry is just getting started.
Here are some key numbers to know from NAPHIA’s report:
- Nearly 20 companies participate, providing their pet insurance data.
- In-force gross written premium (GWP) is on a steady climb:
2017: $1.030 Billion
2018: $1.254 Billion (21.7% increase from 2017)
2019: $1.558 Billion (24.3% increase from 2018)
2020: $1.986 Billion (27.5% increase from 2019)
2021: $2.591 Billion (30.4% increase from 2020—nearly 1/3)
- More people insure their dogs than their cats: in 2021, 88.4% of the total U.S. volume of GWP insured dogs—although this is a slight decrease from 2020, where 89.1% of the total GWP was for dogs.
- The total number of pets insured in the United States increases year over year:
2017: 1.8 million pets
2018: 2.15 million pets (18% increase from 2017)
2019: 2.51 million pets (16.7% increase from 2018)
2020: 3.1 million pets (23.2% increase from 2019)
2021: 3.98 million pets (28.3% increase from 2020)
Where are these pets? Perhaps not surprisingly, the most populous states also have the most pups:
-California has 19.3% of all insured pets, meaning about 21.6% of the total GWP for pet insurance comes out of California. -New York is a fairly distant second, having 8.4% of all insured pets, or about 9.3% of the total GWP. -Florida trails behind with 6.1% of the nation’s insured pets, or about 6.2% of the total GWP. -Texas and New Jersey each have about 5.5% of the nation’s insured pets (although GWP is a bit less in Texas—4.8% in comparison to New Jersey’s 5.4%). -The list is rounded out by Massachusetts (4.7%; 4.8% GWP); Pennsylvania (4.6%; 4.4% GWP); Washington (4.1%; 4.0% GWP); Illinois (3.2%; 3.3% GWP); and Virginia (3.1%; 3.2% GWP).
Dissecting a pet insurance claim
What do pet insurance claims look like? With pet insurance most closely resembling human health insurance, most claims are for routine vet care visits, emergency surgeries or accidents. According to NAPHIA, below is a compilation of the top ten surgeries for dogs and cats in the United States in 2021.
The numbers are staggering, with the “top dog” incurring just over $50,000 in claim dollars after she was hit by a car. According to Consumer Reports, the average annual premiums paid for a dog in 2020 were just shy of $600, and about half that ($340) for a cat. Based on the below numbers, some pet surgeries can cost in the tens of thousands of dollars.
As a long-time pet owner who has shelled out thousands for unsuspected pet emergencies over the years, pet insurance policies can save lives. Where a pet owner may otherwise not have the funds to spend to save their furry friends, insurance can make a world of difference to save a pet that otherwise might not receive the medical care it needs to survive.
From a legal and regulatory standpoint, what does the significant growth in the pet insurance space mean?
The National Association of Insurance Commissioners (NAIC) has clearly taken pet insurance seriously. As early as April 2019, the NAIC published its whitepaper on pet insurance, “A Regulator’s Guide to Pet Insurance.” Specifically, at the spring 2022 national meeting (April 4), the Property and Casualty Insurance Committee voted to reinstate the Pet Insurance Working Group so edits to the model law could be finished. The working group will make the required revisions to the model law before it is presented again to the parent committee for consideration.
Right now, regulation varies widely, and according to the NAIC, California is currently the only state with a law specifically governing pet insurance. California law requires policies to have clear language on coverage limits, lifetime limits, waiting periods, and deductibles. It will be interesting to see how closely, if at all, the model law mirrors what California already has in place. A pet insurance bill was introduced in New York, but never enacted.
Could a rise in insured pets also mean a rise in claims litigation against pet insurers? As is the case with other lines of insurance, a rise in claims and a rise in litigation could go hand-in-hand. The more claims that occur, the greater likelihood that more claims are denied — leading to dissatisfied consumers and more lawsuits against insurers. And just like other lines of insurance, insurers are not immune from claims of bad faith when seemingly small claims are denied.
One such issue that seems hotly debated in the pet insurance industry surrounds what constitutes a “pre-existing condition,” as pre-existing conditions are oftentimes excluded from subsequent pet insurance coverage. In a recent “Los Angles Times” article, a California pet owner had her dog’s insurance claim denied when the dog developed cancer.
Although the insurer deemed the cancer as a pre-existing condition, the owner (who herself worked for a cancer facility) believed the insurer to be wrong: although the dog had previously experienced (and beat) cancer, a brand-new cancer, in a new area of her body, was different. Although it does not appear as though this matter escalated through litigation, similar claim disputes are almost certain to increase over time. As the scale and size of pet insurance grows, additional legal considerations will likely grow in comparable scale.
Sandra K. Jones is an insurance partner at Faegre Drinker Biddle & Reath in the Philadelphia office and the co-leader of the long-term care insurance team and co-leader of the structured settlement annuities team.
Opinions expressed here are the author’s own.