1、Pet insurance:market activity,trends and key issuesCasualty Actuarial Society Annual MeetingNovember 8,2021Presented by Morgan Butz and Brian ChiarellaPage 2DisclaimersEY refers to the global organization,and may refer to one or more,of the member firms of Ernst&Young Global Limited,each of which is

2、 a separate legal entity.The views expressed by the presenters are their own and not necessarily those of Ernst&Young LLP or other members of the global EY organization.These slides are for educational purposes only and are not intended to be relied upon as accounting,tax,legal or other professional

3、 advice.Please refer to your advisors for specific advice.Page 3Table of contentsSection A:Pet insurance and regulationWhat is pet insurance?What else can pet insurance cover?What isnt pet insurance?Poll question 1A regulatory analogyA multi-disciplinary approach to pet insuranceRegulatory differenc

4、es by stateData sourcesSection B:Market dynamics and growthMarket size and growthAverage premiumsPoll question 2Market penetrationMarket sharesDistribution channelsSection C:Pricing,underwriting,and claimsPolicy featuresUnderwritingPoll question 3PricingAlternative approaches to age ratingLoss trend

5、sClaims and reservingSection D:Human health considerationsPlan designPricing and underwritingNetworks and cost controlFinancial reportingPoll question 4Section A:Pet insurance and regulationPet insurance:market activity,trends and key issuesPage 5What is pet insurance?Pet insurance reimburses paid v

6、eterinary costs(subject to terms)when insured pets receive health care:Insured pets are most commonly dogs and cats,but insurance coverage is available for other animals,too:ReptilesBirdsReptilesSmall mammalsAccidentsIllnessesWellnessMedicalCatsDogsWhat else can pet insurance cover?Page 6Diagnostic

7、exam feesPrescription medications(Rx)Prescription foods and supplementsCongenital conditions(e.g.,heart disease,cataracts)Hereditary conditions(e.g.,diabetes,thyroid disease)Dental illnesses(e.g.,extractions,gingivitis)Boarding fees in emergency situationsLoss-and-found pet search expensesWorking-pe

8、t coverage(police dogs,therapy pets)Recovery and complementary care:AcupunctureChiropracticBehavioral modificationHydrotherapyPhysical therapyHomeopathyNaturopathyPet insurance:market activity,trends and key issuesPage 7What isnt pet insurance?Life insurance for animalsHomeowners coverage E(personal

9、 liability)Dog owner liability(dangerous dog insurance)Livestock insurancePoll question 1Page 8How is pet insurance regulated?a)It is classified as special liabilityb)It is classified as other liabilityc)It is classified as health insuranced)It is classified as inland marinePoll question 1 answerPag

10、e 9Pet insurance is regulated as a property and casualty line of business:inland marinePet insurance is similar in nature and coverage to human health insurance;however,pets are legally considered personal property and therefore pet insurance is regulated as a property and casualty line of business.

11、The National Association of Insurance Commissioners(NAIC)published A Regulators Guide to Pet Insurance in 2019 detailing the current state of pet insurance coverages,forms,marketing strategies,licensing and other considerations.The NAICs Pet Insurance Working Group meets regularly to complete the de

12、velopment of a model law to establish appropriate regulatory standards for the pet insurance industry.Pet insurance:market activity,trends and key issuesPage 10A regulatory analogyExample:waterExample:healthThis is important to recognize because property and casualty pet insurers want be more knowle

13、dgeable of human health considerations(see Section D),and health pet insurers want to be more competitive in a property and casualty framework.Municipal water is regulated as:WaterBut bottled water is regulated as:FoodHuman health is regulated as:HealthBut animal health is regulated as:PropertyRegul

14、atory differences by statePage 11Florida:While almost all states regulate pet insurance as inland marine,Florida regulates pet insurance as livestock and animalsCalifornia:Currently the only state with a law specifically governing pet insurance:The law requires pet insurers to disclose baseline info

15、rmation regarding reimbursement benefits,pre-existing condition limitations,and a clear explanation of limitations of coverage,including coinsurance,waiting periods,deductibles and annual or lifetime policy limits.The California laws also provide consumers with a 30-day“free look”period in which a p

16、et insurance policy can be returned for a full refund.An earlier version of this bill attempted to prevent exclusions for pre-existing conditions but was vetoed by the governor.No states address producer or adjuster licensing.Most states require a full property and casualty license to sell,solicit o

17、r negotiate pet insurance,while a few states,including Idaho,New Jersey,Rhode Island and Virginia,allow for use of a limited lines license.Data sourcesPet insurance does not have its own financial reporting line in the annual statement.Industry loss data is not easily obtainable because pet insuranc

18、e is commingled with other inland marine property coverages,such as contractors equipment,in the annual statement.North American Pet Health Insurance Association(NAPHIA)Centralized industry resource for reporting and publishing of pet insurance informationAnnual state of the industry report availabl

19、e to its contributing membersRate filings from a source such as S&P Capital IQS&Ps rate filing inventory is one source of available information on pet insurance Pet insurance plans can be identified as a subtype of insurance within inland marinePage 12Step 5a.Select Type(s)of Insurance.Step 5b.Click

20、 UPDATE SUB-TOI button and select Sub Type(s)of Insurance.SELECT ALLUNSELECT ALLSELECT ALLUNSELECT ALLUPDATE SUB-Section B:Market dynamics and growthPage 14Market size and growthSource:naphia.org(North American Pet Health Insurance Association)Page 15Average premiumsSource:naphia.org(North American

21、Pet Health Insurance Association)Poll question 2Page 16How many pets are insured in the US?a)550,000b)2.3 millionc)3.1 milliond)8.7 millionPage 17Poll question 2 answerSource:naphia.org(North American Pet Health Insurance Association)Page 18Market penetrationSource:trupanion August 2021 investor pre

22、sentation Page 19Market sharesPet insurance market share is less concentrated today relative to 10 years ago as competitors take share from the No.1 provider and new participants and startups enter the pet health market.Source:EY analysisPage 20Distribution channelsInsurance is available through the

23、 following“channels”:Direct to consumer/digitalEmployee voluntary benefitsAgents and brokersAffiliatesPet insurance review sitesPet insurance comparative ratersPartnerships VeterinariansSource:Section C:Pricing and underwritingPolicy featuresStructurePercentage of invoice these plans reimburse a sta

24、ted percentage of covered veterinary expenses;this percentage is known as the coinsurance requirement or the reimbursement level.Benefit scheduled these plans define the reimbursement amount by the diagnosis or treatment;these products are more complicated to administer and are not very common in pe

25、t insurance.ConfigurationAccident only not popular with policyholders but can offer lower price points for emergencies.Accident and illness(medical)this is the most common configuration providing full medical coverage.Wellness some insurers offer wellness coverage and some dont.Coinsurance 90%is the

26、 most common but can typically range from 50%to 90%.Deductible$250 is the most common but can typically range from$100 to$1,000.Limit annual limits are commonly between$5k and$10k;some policies are unlimited.Page 22UnderwritingPre-existing conditionsPlans exclude coverage on pre-existing conditions,

27、but the extent of underwriting and fraud detection abilities to determine or deny coverage varies significantly between insurers.Hereditary or congenital conditionsExclusions may exist on certain health conditions,but this varies among insurers as well.Waiting periodsMost policies are sold with a wa

28、iting period(a time between application approval and the policy effective date)to minimize the risk of adverse selection;the common waiting period is 14 days.High utilization(frequency)Pet insurance is a high-utilization product because policyholders typically obtain the coverage with the intent to

29、use it.Active underwriting may be required on highest-utilizing policyholders to manage loss ratios.Page 23Poll question 3Page 24Who was the first insured dog in the US?a)Rin Tin Tinb)Benjic)Beethovend)Eddie from Frasiere)LassiePoll question 3 answerPage 25Pricing These are most critical pricing var

30、iables for pet insurance:SpeciesBreedAgeTerritoryCoinsurance/deductible/limitPricing algorithms may additionally include variables such as the following:GenderSpay/neuterWorking petPolicyholder discounts are commonly offered based on affiliations and partnerships:Animal shelter or human society disc

31、ountsStrategic partner and corporate group discountsVeterinary staff and student discountsPage 26Alternative approaches to age ratingPage 27Attained age rating animals are rated based on their attained age when they become insured,and premiums increase each year to account for the aging of the pet.I

32、nitial age rating animals are rated based on their attained age when they become insured,but premiums do not increase to account for the aging of the pet in future years.Underwriting duration benefit for animals that are insured later in their lives,a higher rate may be charged for a given age,as it

33、 is more likely that unfavorable health conditions exist.Underwriting duration penalty for animals that are insured later in their lives,a lower rate may be charged for a given age,as the insurer is able to exclude certain pre-existing conditions.Loss trendsPage 28Loss cost trends on pet insurance p

34、ortfolios may be 10%to 15%annually,or higher.Veterinary inflation is quite high and can be difficult to keep pace with.People who buy pet insurance policies typically use them,and benefit utilization rates are high and increasing.Source:Nationwide Purdue Veterinary Price Index(2019 update)Claims and

35、 reservingPet insurers receive high volumes of small claims,so the pet insurance claim process should be highly automated,with straight-through processing where possible.Lack of standardization in veterinary diagnosis and treatment codes has been a challenge to implementing such auto-adjudication of

36、 pet insurance claims.Document intelligence solutions can be critical differentiators in the pet claims process.Pet insurance reserving considerations include the following:Paid basis reimbursement nature of the coverageNo“open”claims typicallyNo case reserves typicallyVery short development tail(a

37、few months)Page 29Section D:Human health considerationsPet insurance:market activity,trends and key issuesPage 31Human health considerationsBenefit caps Dental insurance typically has fairly low limits particularly for wellness(e.g.,cleanings)and voluntary(e.g.,orthodontia)expenses.Benefit richness

38、Rich benefit designs may be particularly subject to adverse selection in situations where market penetration is low.“Barbell”plan designs No-or low-cost wellness coverage combined with a higher deductible can encourage preventative treatments and reduce severe outcomes.Scheduled benefits Some human

39、health products define the claim amount payable for each condition based on a payment schedule found in the contract.Plan designPet insurance:market activity,trends and key issuesPage 32Human health considerationsPre-existing condition exclusions Exclusions and waiting periods may mitigate the risk

40、that insurance is bought only when a forthcoming need for coverage is expected.Post-claims underwriting The pre-ACA individual marketplace used post-claims underwriting to deny claims based on discovered policy misrepresentations.Experience studies High-frequency lines of business like health insura

41、nce create relatively rich sets of claims data that can be evaluated for actionable insights.Pricing and underwritingPet insurance:market activity,trends and key issuesPage 33Human health considerationsNetworks Human health insurers negotiate discounts with providers and charge members different cos

42、t shares for in-network providers vs.out of network.Provider capitation and profit sharing These are both mechanisms to transfer risk to the health care providers and create incentives for offering lower-cost services.Group plans Group plans and group rating capabilities may help increase sales volu

43、me over time by offering targeted pricing and products to known populations.Claims adjudication The majority of low-complexity and high-frequency human health insurance claims are auto-adjudicated to reduce administrative expenses.Networks and cost controlPet insurance:market activity,trends and key

44、 issuesPage 34Financial reportingHuman health considerationsAttained vs.issued age Human health insurance policies may be priced based on the current age of the insured or the age when the policy was first issued.Durational deterioration This concept reflects the wear-off of the favorable impact of

45、initial underwriting when the insurance product is rated based on attained age.Long-duration contracts If certain conditions are met,accounting for policies as long-duration contracts could allow future policy benefit reserves to be recorded.Poll question 4Page 35How many peeking pets were in this p

46、resentation?a)3b)7c)9d)11Poll question 4Page 369 peeking petsQuestions?Thank youPage 37EY refers to the global organization,and may refer to one or more,of the member firms of Ernst&Young Global Limited,each of which is a separate legal entity.Ernst&Young Global Limited,a UK company limited by guara

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