Overview

Introduction

The pet insurance sector is facing an uncertain future. As high claims inflation continues to force premiums up year-on-year, insurers are concerned that consumers may be priced out of the market. However, a number of players are changing competitive strategies to try and control inflation, and restore growth in the market. This report examines these trends, and their implications for the market.

Scope

• The latest data and market research, including information on pet population numbers, shifts in pet ownership trends, and product penetration levels
• An understanding of the competitive environment, and of the impact that new entrants and major insurers are having on the sector
• Insight into changes in product distribution, such as the growth in online and third party sales
• Two scenarios forecasting the market's GWP growth until 2010, based on primary research and in-house expertise

Report Highlights

The market for cat and dog insurance grew significantly in 2005, as premium rates rose and product penetration increased. The main driving factor behind rising premiums has been the continued high rate of claims inflation. The average cost of a claim has risen significantly and continues to increase, primarily as a result of veterinary inflation.

Interviewees reported that claims inflation was running at an average of around 12 per cent, which means that, for the market as a whole 'double digit' premium increases would be necessary for insurance companies to ensure that their books remained profitable.

The market has seen an increase in activity among larger composite insurers over the last couple of years, with a number of high-profile entries. Also, following the success that Sainsbury's and Tesco have had in selling pet insurance policies, a number of other retailers have arranged partnerships and launched products in the market.

Reasons to Purchase

• Understand UK pet ownership trends and how canine and feline populations are changing
• Gain access to competitor information and unique 2006 market share figures
• Develop your future commercial property strategy using Datamonitor's unique forecasts

• CHAPTER 1 EXECUTIVE SUMMARY
  • The pet insurance market grew rapidly in 2005 as a result of increasing premiums and a higher level of penetration
    • The market recorded strong growth in 2005, with premium income rising by 17 per cent
    • Claims inflation is running at around 12 per cent, driven by veterinary inflation
      • Increases in veterinary fees are driving claims inflation
  • The entrance of major retailers and other third party distributors has had a significant impact on the market
    • Corporate partnerships are bringing new players into the market and changing the face of pet insurance distribution
    • Online distribution of pet insurance is rising
      • Retailers are promoting direct sales over their Internet sites
      • Specialist pet insurers have also noticed a rise in Internet sales, however this is seen as a mixed blessing
  • Changes in pet insurance distribution have meant that the market leader and specialist insurers are losing business to composite insurers
    • Petplan's distribution strategy has had to change as regulation has weakened the veterinary distribution channel
    • New entrants are still interested in joining the market
      • Insurance companies are providing pet insurance products to improve their personal lines offerings
      • Retailers from a range of different sectors are targeting growth in the pet insurance market
  • The cost of premiums and product penetration are the key variables that will affect the future growth of the pet insurance market across both scenarios
    • Product development, improved pricing structures and pressure from partners brings premium inflation under control
    • The growth of the retail and partnership distribution channel should impact positively on product awareness and attract new customers
    • However, if insurers are unable to curb claims inflation and prices continue to rise, the onset of declining business volumes in the near future is anticipated
• CHAPTER 2 INTRODUCTION
  • What is this report about?
  • Who is the target reader?
  • How to use this report
• CHAPTER 3 MARKET CONTEXT
  • Introduction
  • The pet insurance market grew rapidly in 2005 as a result of increasing premiums and a higher level of penetration
    • The market recorded strong growth in 2005, with premium income rising by 17 per cent
    • The growth of the pet population has slowed in response to changes in social trends
      • As the number of economically active people increases, fewer people now feel they can take care of pets
      • Fewer households have people at home who are able to look after pets
      • A reduction in the number of suitable households has driven a decline in the pet population, affecting dogs in particular
      • The number of dogs in the UK has declined, although the cat population appears more buoyant
  • Product penetration is around 18 per cent and has been increasing
    • Penetration in Britain is much higher than in the United States, although much lower than in Sweden
    • Product awareness seems to have improved with the entry of high-profile retailers into the market
    • Consumer research has indicated that penetration is indeed rising
      • Premium rates increased substantially in 2005, as a result of continued claims inflation
  • The pet insurance market is dominated by cats and dogs
    • PFMA statistics show that around 52 per cent of UK homes had a pet in 2004
  • Claims inflation is a serious problem for the market, threatening both profitability and future growth
    • Claims inflation is running at around 12 per cent, driven by veterinary inflation
      • Increases in veterinary fees are driving claims inflation
      • Pet insurers are more restricted than underwriters in other personal lines because the market revolves around preserving animal welfare
  • Several factors are hampering any reduction in claims costs in the short-term
    • The composition of the veterinary sector makes it hard for insurers to liaise with this profession
    • However, the Veterinary Medicines Regulation 2005 could promote competition and in the long run bring the cost of medicines down
  • Premium rate increases to match claims inflation are unsustainable and the market will contract if the problem is not dealt with
  • Insurers are trying to mitigate the effects of high claims inflation
  • Increases in competitive intensity and claims inflation nevertheless mean that margins are being squeezed
• CHAPTER 4 CUSTOMER FOCUS
  • Introduction
  • Pet insurance providers need to address the level of customer confusion
    • Consumers should be made more aware of the benefits of pet insurance, but confusion over policy coverage is high
    • Providers need to be careful that products launched to make pet insurance more affordable, do not lead to customer dissatisfaction
  • Pet insurance customers are characteristically under 60 and in higher income brackets
    • Penetration decreases significantly in the over 60 age group
    • Almost 40 per cent of pet insurance customers earn Ј25K or more per annum
  • The entrance of major retailers and other third party distributors has had a significant impact on the market
    • Corporate partnerships are bringing new players into the market and changing the face of pet insurance distribution
    • Online distribution of pet insurance is rising
      • Retailers are promoting direct sales over their Internet sites
      • Specialist pet insurers have also noticed a rise in Internet sales, however this is seen as a mixed blessing
        • Vets are declining as key distributors of pet insurance products
  • Direct mail was the most popular advertising medium used by pet insurance providers in 2005, but some insurers also spent heavily on TV marketing campaigns
    • Direct Line was the biggest pet insurance advertiser in 2005
• CHAPTER 5 COMPETITIVE DYNAMICS
  • Introduction
  • Changes in pet insurance distribution have meant that the market leader and specialist insurers are losing business to composite insurers
    • Petplan's distribution strategy has had to change as regulation has weakened the veterinary distribution channel
    • Growth in direct distribution and corporate partnerships has meant that players such as RBS and AXA are gaining business
      • RBS Insurance uses multiple brands to help boost sales, and combined it underwrites about half a million policies
      • AXA has continued to increase market share, and underwrites a significant amount of business for intermediaries and retail partners
  • New entrants are still interested in joining the market
    • Insurance companies are providing pet insurance products to improve their personal lines offerings
    • Retailers from a range of different sectors are targeting growth in the pet insurance market
    • Supermarkets are offering a range of incentives to customers in order to encourage them to take out cover
    • There has also been some interest from the banking sector
  • Thornside has taken over JLT's role as a major third party distributor
    • Thornside has become one of the largest administrators in the market
    • Other third party administrators like Jardine Lloyd Thompson are losing out to Thornside
  • Specialist insurers have come under pressure as a result of the growth of larger insurers, and are responding by focusing on product quality
    • Pet Protect has continued to focus on its claims handling and customer service quality
    • Pinnacle is also concentrating on lifetime cover and product quality
    • E&L has attempted to bypass competitive market conditions by targeting niche sectors and more unusual risks
  • Petplan and the RBS brands dominate the market
• CHAPTER 6 THE FUTURE DECODED
  • Introduction
  • The cost of premiums and product penetration are the key variables that will affect the future growth of the pet insurance market across both scenarios
    • Trends affecting the pet population are expected to stay constant
    • The pet insurance market needs to look at the PMI sector as a warning sign
  • Scenario 1: Growth in product penetration is sustained as insurers bring premium inflation under control
    • The growth of the retail and partnership distribution channel should impact positively on product awareness and attract new customers
    • Product development, improved pricing structures and pressure from partners brings premium inflation under control
      • Partners put pressure on insurers to reduce the cost of cover
    • GWP rises to over Ј400 million by 2010
  • Scenario 2: A more pessimistic prognosis forecasts the onset of declining business volumes in the near future
    • Insurers are unable to curb claims inflation and prices continue to rise, forcing consumers out of the market
    • GWP growth slows in 2007 and beyond
  • The most likely outcome will be determined by a number of key factors
    • Variables and key determining factors
• CHAPTER 7 APPENDIX
  • Definitions
  • Research methodology
    • Ipsos MORI data
      • Sample design
  • Future readings
  • Relevant links
  • Datamonitor's custom research capabilities
  • SPP writing team
  • List of Tables
    • Table 1: UK cat and dog insurance market size, 2001-5
    • Table 2: UK economic activity levels, 1996-2005
    • Table 3: UK employment rates by sex, 1996-2005
    • Table 4: UK working-age households, by household economic activity, 1996-2005
    • Table 5: The UK cat and dog population, 1996-2005e
    • Table 6: Penetration levels of UK pet insurance, 2003-5
    • Table 7: The percentage of animal-owning households in the UK, 2004
    • Table 8: Penetration of pet insurance products split by age group, 2005
    • Table 9: Cat, dog and rabbit ownership among consumers, by age group, 2005
    • Table 10: Penetration of pet insurance among consumers, split by income group, 2005
    • Table 11: Top ten pet insurance advertisers by medium, 2005
    • Table 12: Total pet insurance advertising spend by media, 2003-2005
    • Table 13: Estimated competitor market share, GWP, 2006
    • Table 14: Policyholder numbers and mean premium costs in the individual sector of the PMI market, 1990-2004
    • Table 15: Scenario 1: UK cat and dog insurance GWP, 2001-10f
    • Table 16: Scenario 2: UK cat and dog insurance GWP, 2001-10f
  • List of Figures
    • Figure 1: GWP increased in the cat and dog sectors of the pet insurance market in 2005
    • Figure 2: The number of economically active individuals in the UK has risen steadily over the last ten years
    • Figure 3: The number of women in employment rose steadily between 1996 and 2005
    • Figure 4: The number of working households has risen over the last ten years, with negative implications for pet ownership
    • Figure 5: The dog population is believed to have declined in 2005
    • Figure 6: Cats are the most popular pet found in UK households
    • Figure 7: Pet insurance products are less popular among consumers over-60
    • Figure 8: Pet ownership drops significantly among consumers in the over 60 age band
    • Figure 9: Affluent consumers are more likely to have pet insurance
    • Figure 10: Direct Line had the highest pet insurance advertising expenditure in 2005
    • Figure 11: Direct mail was the most popular advertising medium used in the pet insurance industry in 2005
    • Figure 12: Petplan and RBS control over 50 per cent of the pet insurance market
    • Figure 13: As premiums rose in the PMI market, the individual sector reached a point at which high costs drove policyholder numbers down
    • Figure 14: Scenario 1: A summary of the key variables influencing the pet insurance market, 2006-10f
    • Figure 15: Scenario 1: GWP growth is sustained until 2010
    • Figure 16: Scenario 2: A summary of the key variables influencing the pet insurance market, 2006-10f
    • Figure 17: Scenario 2: GWP slows in 2007 as high premium rate increases force consumers out of the market
    • Figure 18: Datamonitor's core consulting capabilities