Filed Under:Markets, Commercial Lines

'Pet parents' fuel rapidly growing North American pet insurance industry

(Bloomberg) -- Maria Makara didn’t hesitate to insure her two new dogs. That’s because they’re family.

Her previous pet, a Yorkshire terrier, died in 2013 after contracting pancreatitis and Cushing’s disease. Makara ended up paying $4,000 for treatments and tests in the dog’s final years. Last month she bought health insurance for her two “boys.” For $40 a month, she insures both Jack, a white Chihuahua-poodle mix, or chi-poo, and Colby, a four-pound (2 kilogram) morkie-poo, a mix of Maltese, Yorkie, and poodle breeds.

“They’re my babies,” Makara, 36, said by phone from her office in New York where she works as a marketing director. “There are a lot of people like myself who have dogs and don’t have children, or they’re a single person living by themselves. People like me have a disposable income and they’re spending it on their dogs.”

Makara is among so-called pet parents fueling a $600 million industry in North America that’s growing at triple the pace of U.S. accident-and-health coverage, drawing investment from companies including Toronto-based Fairfax Financial Holdings Ltd. and Nationwide Mutual Insurance Co.

Fairfax, run by value investor Prem Watsa, agreed this year to buy Pethealth Inc., North America’s second-largest pet insurer, for C$100 million ($88 million). The Oakville, Ontario-based firm provides pet pharmaceuticals, microchips for animal identification, and insurance that covers everything from behavioral therapy to a reward for the return of a runaway pet.

“It’s a nascent industry and demographically it has legs, especially with the adoption of pets as family members,” Fairfax President Paul Rivett said in a telephone interview.

Swedish Roots

Watsa also bought Canton, Ohio-based Hartville Group Inc. last year. The pet insurer offers its plans, which include acupuncture and laser therapy, through the American Society for the Prevention of Cruelty to Animals and other brands.

The industry got its start almost a century ago in Sweden where about half that country’s pets are now insured, according to the ASPCA. In North America, Veterinary Pet Insurance Co., a subsidiary of policyholder-owned Nationwide, traces its roots to 1982 when it covered a dog playing Lassie on television.

VPI has a market share of more than 40% in the U.S., according to data provider Packaged Facts. Among its rivals are Pethealth and Trupanion Inc., which had an initial public offering this year. Seattle-based Trupanion’s backers have included a venture capital firm founded by Starbucks Corp. Chief Executive Officer Howard Schultz.

Untapped Market

Trupanion has slid 35% since its July IPO. The industry isn’t as established in North America as in Europe, and investors may be concerned that the company will be pressured by larger rivals, said Rohit Kulkarni, an analyst for Royal Bank of Canada who rates it a buy. Fairfax has jumped 27% this year to C$540 yesterday in Toronto.

“The market is full of opportunity and remains to a large extent untapped,” Kulkarni said by phone. He said he expects more consolidation in the industry as bigger insurers seek to gain market share, brand recognition, and business lines with growth potential.

Gross written premiums in-force jumped an average 13% annually from 2009 to last year according to data and forecasts compiled by the North American Pet Health Insurance Association, the group whose members account for 85% of the industry. That compares with the average 3.5% annual rise in premiums for personal accident and health policies in the U.S. in the period, according to data compiled by Timetric.

Family Members

Petplan, an affiliate of Allianz SE’s Petplan Ltd., expects revenue this year of $70 million, an increase of about 30% from 2013. Vernon Hill, founder of Commerce Bancorp Inc., is an investor in the U.S. company and chairman of its board.

“Pets are becoming more and more a part of the family, and people want to give them the same level of care as other members of the family,” Petplan co-CEO Natasha Ashton, 40, said by phone from the company’s headquarters in Newtown Square, Pennsylvania “The only way they can afford to do that is with pet insurance.”

The operation that she runs with her husband started with “three people and the cat” selling a few policies a day, and now has 150 employees and their pets in a 16,000-square-foot (1,500-square-meter) office, according to Ashton. This year the company expects to sell 150,000 policies. A typical client is a female with a graduate degree and annual income of at least $70,000.

Generations ago, pets were “in fields, where we didn’t worry about them, and then they moved into the backyard, and now they’re in our homes and sleep in bed with us,” said Kristen Lynch, executive director of the North American Pet Health Insurance Association from Winnipeg, Manitoba.

Emergency Surgery

Aside from basic coverage, including emergency surgery and treatment for infections, policies have expanded to meet modern demands. Embrace Pet Insurance offers alternative treatment coverage, including Reiki, a Japanese energy therapy. Some plans, including policies provided by a Pethealth brand in the U.K., offer death benefits of at least 500 pounds ($790).

The cost of insuring a dog or cat can range from $10 to $100 per month. Policyholders often have to pay a deductible before the insurer covers claims.

Arlena Yuen, a 28-year-old who lives in a Brooklyn apartment with her boyfriend, her dog Tira and cat Misu, doesn’t think insurance is worth it, though she pays for a monthly dog treat and toy-delivery service for the four-year-old pug and beagle mix.

Floppy Ears

When Yuen was still in college, Tira got so sick that the veterinarian recommended a $2,000 treatment. Yuen could only afford $500 for the medicine, and Tira made it through. Another time, Tira was attacked while playing at a dog park and required stitches on her floppy ears. Yuen is betting she won’t need to shell out that much again.

“In the long-run, I don’t think it’s cost-effective,” Yuen said this week from her office at City University of New York. “She’s been relatively healthy.”

For others, the insurance coverage means an owner won’t have to make a hard decision later.

“I’d rather be safe than sorry,” Makara said about the insurance she bought for her two dogs. “It’s worth it.”

Copyright 2017 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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