Why start-ups are outdoing big insurers in the pet insurance market

There is no NHS for pets, so the costs for illness or accidents, which can run into tens of thousands, are paid for by owners.  The UK has a rising level of pet ownership, which was boosted by people buying pets for companionship while working (and living) at home during lockdowns last year and earlier this year. 

Partly because of this, pet insurance is a growing market that is continually attracting more insurers and big insurers have already targeted then left the market.  This is because the pet insurance market is unique and normal insurance tactics may not work.   

A tough start  

The relationship between claims and policies is different to many other insurance categories.  Claims can be more likely in the early part of a pet’s life as well as towards the end of a pet’s life.  Pets tend to require more treatment at vets when younger, be it for routine procedures such as being chipped or neutered, or because young animals are adventurous and often eat and drink things they should not.  They are also less cautious at a young age and can be prone to getting into fights!  

Insurers must therefore be ready to cope with higher claims ratios in the early years and should expect to get around six claims for every ten insurance policies each year in the UK.  This makes it easy to burn through cash quickly and insurers should not expect to make much profit in the early years of operating.  

Traditional insurers usually enter the market by adding pet insurance to their existing insurance business. But now start-ups are using pet insurance as a platform to grow wider pet wellbeing businesses that can cater for a variety of needs for owners and their pets.  

Competitive advantages for start-ups 

Insurtech companies and newer entrants can take a digital first approach to the market, automating pricing policies and the claims process.  As more information on pets, their susceptible conditions and long-term cost is gathered, start-up insurers are adopting digital technology and using machine learning models to make better decisions on pricing products.  

Because of this they can offer cheaper policies to pet owners, which in turn increases their competitive advantage over big insurers.  There is a virtuous circle for start-ups in the market right now.  As only around 30 per cent of pets are insured at present there is also a huge growth potential for start-ups before the big insurers use their resources to find ways to thrive in the market.