Insurance considerations for our furry & feathered friends
Pet insurance plans covering the veterinary costs associated with diagnosing behavioral problems in pets is as an attractive solution to pandemic-related mental health concerns.
While pet insurance is not new, in recent years it has seen an increase in popularity and growth. The North America Pet Health Insurance Association (NAPHIA) reports that approximately 3.45 million pets were insured throughout the United States at the end of 2020, and pet insurance has increased at an average annual growth rate of 23.4% over the last five years.
The 2020 numbers are 23.2% higher than in 2019, leading the pet insurance industry to surpass $2.17 billion in premiums paid. In Canada, pet insurers reportedly sold $244.6 million in premiums, a 17.2% increase since 2019.
In the U.K., Bought By Many, a London-based pet insurance provider, increased its cat and dog policies sales by more than 150% over the last year. As the types of insurance products offered continue to diversify, there is little surprise that pet insurance is among those lines of insurance forecasted to steadily increase over the next few years — especially considering that approximately 85 million people in this country own at least one pet. And as pet ownership continues to rise — coupled with an increasing American mindset that “pets are family,” the street for the industry’s growth is already paved.
COVID-19 led to increased pet insurance sales
The COVID-19 pandemic changed pet ownership in the United States. When the first stay-at-home orders came down, families had more time to spend at home and dedicate to a pet. Shelters, nonprofit rescues, private breeders, and pet stores have reported higher demand for pet ownership than the number of pets to fill it. Not surprisingly, new pet ownership also brought higher veterinary costs and sales of other pet goods and services.
The increased number of insured pets is attributed to the increased number of new pet owners, the strengthened bond between existing pets and their owners while working from home, and the rise of mental distress reported in the pets during the pandemic.
Unfortunately, the dramatic shift in pets’ schedules when pet owners returned to offices caused many of these animals to experience stress, typically manifested in attention-seeking conduct, such as constant barking or unwelcomed-bathroom behavior. Pet insurance plans covering the veterinary costs associated with diagnosing behavioral problems in pets is as an attractive solution to pandemic-related mental health concerns.
The rise in pet ownership and pet insurance sales affects yet another variable, too: employment decisions. While pet insurance sales soared this past year, employee retention rates plummeted, and the two rates may be more related than we think. According to research from the National Association of Insurance Commissioners (NAIC), the fastest growing form of pet insurance distribution is through employee benefit packages.
In fact, a Nationwide-Human Animal Bond study found that out of 2002 full-time employees, 72% of employees who have pet insurance through employee benefits would turn down a similar job with comparable pay at another, less pet-friendly company, while only 44% of employees in non-pet-friendly companies reported the same. The study also found that 88% of employees who work in pet-friendly spaces recommend their employer to others compared to only 51% of employees in jobs where pets are not welcome.
Studies show that millennials prioritize their pets more than any other demographic. A Health Pocket poll reports 62% of millennials say they would put their pets’ health before their own. In terms of retaining an existing employee base as well as attracting new, young talent, employers may start offering pet insurance benefits to boost employee retention and application rates, appealing to the growing number of pet owners in the workforce. The growth in the pet insurance market sparked by the pandemic is projected to continue well after the stay-at-home orders and pet owners, pet insurers, employees and employers alike will start to position themselves accordingly. This is somewhat in contrast to many states’ views on the “property” status of pets, rendering the legal value of a pet akin to any other personal belonging or property (i.e., the cost of the pet is likely its property value in most states to date).
The insurance regulatory landscape is shifting
Beyond consumers, insurance regulators are also starting to pay closer attention to pet insurance. In 2016, a pet insurer raised concerns to the NAIC’s Producer Licensing (D) Task Force that pet insurance should not be a “limited line” of insurance for licensing purposes, and rather that a full Property and Casualty line license be required to sell, solicit or negotiate pet insurance. Reasons cited by this insurer included the growth of the pet industry as a whole; the cost of premiums exceeding the property value (cost) of the pet(s) being insured; and (iii) the complex and unique nature of the policies being issued. See NAIC “A Regulator’s Guide to Pet Insurance.” To better understand the growing pet insurance market and industry, in 2018, the NAIC decided to develop a white paper providing information on coverage options, product approval, marketing, rates, claims practices, and other regulatory issues and concerns.
In 2019, the NAIC issued an analysis of the history and development of pet insurance in the U.S. Pet insurance was first promulgated here in 1980, and the industry has steadily grown since its introduction. In 2017, for example, pet parents paid approximately $1 billion in pet insurance premiums to protect their precious family members. These premiums covered approximately 2 million dogs and 400,000 cats during that year. It is anticipated that premiums could top $10 billion by 2025.
A request for a model law development related to pet insurance was adopted during the NAIC 2019 Spring National Meeting to address issues such as “definitions, disclosures, violations, producer licensing, preexisting conditions, reimbursement benefits, and regulations for pet insurance.”
Then, at its July 29 meeting, the working group voted to adopt the Pet Insurance Model Act and presented it to the Property & Casualty Insurance (C) Committee at the Summer 2021 National Meeting. The Property and Casualty Insurance (C) Committee adopted an extension for revisions to the proposed Model Act. The Pet Insurance Working Group will make the required revisions to the model law before it is presented again to the P&C Committee for consideration. As with other model acts, the states are not required to adopt the law or may choose to only adopt portions of the model statute. Once finalized and released, the model law on pet insurance will be the most significant regulatory occurrence to date regarding the product.
As of summer 2021, the NAIC has taken the fairly advanced view that pet insurance operates with similarities to health insurance for humans. According to the NAIC, pet insurance includes exclusions, various levels of coverage, deductibles, and payment limits. Some carriers have different levels of coverage for the customer to choose from, while other carriers have one-size-fits all type plans. Most pet insurance companies exclude pre-existing conditions and hereditary or congenital conditions. Some insurance companies will not accept pets after a certain age and many companies have waiting periods before benefits begin. Pet insurance companies typically divide their products into three main categories: accident-only, accident and illness and wellness coverages. Each level offers specific services that are covered and excluded and will vary by price.
At present, most states require a full property/casualty license to sell, solicit, or negotiate pet insurance. Idaho, New Jersey, Rhode Island and Virginia include pet insurance as a limited lines product. In June 2015, New Jersey DOBI adopted Regulation NJAC 11:17-2.4, also adding pet insurance to the list of limited lines coverage.
California is one of the only states with a specific law governing pet insurance (see Cal. Ins. Code. s 12880-12880.4). The California law requires insurers transacting pet insurance to disclose specific information to consumers including policy exclusions, a waiting or affiliation period, a deductible, coinsurance, or an annual or lifetime policy limit. Further, pet insurance sold in California must allow for a 30-day “free-look” period, during which the pet insurance policy can be fully refunded. This “free-look” period is similar to those offered in most life insurance policies, disability insurance policies, or annuities issued. Some of the model law tracks what California has already implemented.
As our pets remain our most beloved possessions, and the pet insurance marketplace continues to grow and develop, and a model law is released, it is likely that many state regulatory schemes will evolve with the changing times as well.
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. Contact her at sandra.jones@faegredrinker.com.
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