June 2011Pricing Pet Insurance 1 “Going to the Dogs” Or: How a Health Actuary Can Add Value to Pet Insurance Pricing Presented by: Jennifer Dix, FAC June 2011
June 2011Pricing Pet Insurance 2 Intro quiz: Which country has the highest % of pet owners with pet insurance? A. Sweden B. United States C. England
June 2011Pricing Pet Insurance 3 Answer: % of pet owners with pet insurance: Sweden: 50% England: 25% United States: <1%
June 2011Pricing Pet Insurance 4 Topics to be covered: History, competitive environment and plan design Pricing different plan designs using claim probability distributions Pricing benefits using actuarial cost method
June 2011Pricing Pet Insurance 5 History First offered in US in 1982 Up until 2006 basically just 3 competitors: VPI, Hartville and Pet Care Since then about 10 new companies entered the market
June 2011Pricing Pet Insurance 6 Market Share
June 2011Pricing Pet Insurance 7 Market Growth As of 2009, about 850,000 million pets insured at total cost of $330 million Premium has grown about 20% per year for past 5 years Growth of new sales expected to accelerate once economy rebounds
June 2011Pricing Pet Insurance 8 Competitive Climate Emphasis on consumer and customized plans through: – More plan design offerings – Increased reimbursement levels – Greater disclosure Customer online reviews and increased regulatory scrutiny holding insurers accountable
June 2011Pricing Pet Insurance 9 Coverage Pet owner submits vet fees they paid and plan reimburses up to some maximum: – Can be fixed fee schedule, % of vet charges or some level of R&C determined by insurer R&C may be based on % of American Animal Hospital Association (Vet fees published every 2 years) R&C could also be based on company data
June 2011Pricing Pet Insurance 10 Coverage Typical coverage levels: – Accident only – Accident and sickness – Accident, sickness and wellness Pre-existing conditions excluded
June 2011Pricing Pet Insurance 11 Plan Design Varying deductible levels and coinsurance Per incident limits Annual maximums Coverage for congenital/hereditary conditions (?) Continuing Care endorsement
June 2011Pricing Pet Insurance 12 Pricing – Rating Variables Species (cats, dogs) Age Breed Geographic area
June 2011Pricing Pet Insurance 13 Claim Probability Distribution Can be used to price varying: – Deductibles (~$100 ~ $500) – Annual maximums (~$1500 ~ $5000) – Coinsurance levels (70%, 80%, 90%)
June 2011Pricing Pet Insurance 14 Claim Probability Distribution Separate table for each species, plan design level and area For each claim, take allowed amounts and trend to pricing period Sum all claims per pet over 12 month period Bucket into ranges of cost (i.e. $50 increments)
June 2011Pricing Pet Insurance 15 Sample CPD Cost per PetFreqAvg Annual Claim Annual Cost Accum Freq Accum Annual Cost $0 - $50.65$0.50$ $200 $50 - $100.05$74$ $ $100- $150.03$126$ $ ……………… $ $6250$ $62.50
June 2011Pricing Pet Insurance 16 Actuarial Cost Model Useful for pricing wellness benefits, assuming not subject to deductible Determine projected cost and utilization by service type Cost for each service may be defined by benefit schedule
June 2011Pricing Pet Insurance 17 Actuarial Cost Model Sample Service TypeAnnual Utilization Rate Benefit Amount Per Pet Cost Annual Physical.8$50$40 Dentistry Cleaning.5$100$50 Spay/Neuter.2$75$15 Total Net Cost$105
June 2011Pricing Pet Insurance 18 Similarities to human health insurance Plan design (deductibles lower for pets) Rating variables Levels of coverage Modeling techniques