Changing times and sentiments spell profits for pet insurance companies

It took Jack Stephens 15 years to make money after opening his first pet insurance company in 1982. In his second attempt, the Boise-based Pets Best Insurance that he started in 2005, it took him only four.

Times had changed. The second company came out after Hollywood, the pet industry, and a flurry of other social forces had turned pets into family members, with their own clothing lines, specialized foods, and increasingly complex medical care.

“Pets have left the yard and were in the house; now they own the bed,” Stephens said. “The bond and love we have for our pets have dramatically grown.”

Stephens’ company is now experiencing 15 percent annual growth. He said navigating the industry has become easier than ever with upgrades in technology and the know-how to avoid costly mistakes that kept his first business unprofitable for many years.

Boise veterinary clinics report a slight increase in the number of visits covered by pet insurance. They can’t say if insurance affects what services are used.

“It’s common enough that we know what it is, but it’s not something we see even on a daily basis,” said Stefanie Anacabe, office manager for Mountain View Animal Hospital.

Many procedures have grown in popularity and availability since Stephens issued the first-ever policy to television’s Lassie in 1982. Just a few decades ago, the first option for a suffering animal was often euthanasia. Now many of the medical options available to humans are also widely available to animals. Boise’s 24-hour emergency clinic, West Vet, offers specialties like ophthalmology, dermatology and acupuncture.

But that sophisticated medical care, such as hip replacement or a kidney transplant, comes at a steep price. An exploratory surgery at Broadway Veterinary Hospital in Boise costs about $1,500, said Gwen Campbell, a vet assistant there. Another somewhat common surgery to fix an ACL tear, called a bone anchor, can run between $2,200 and $2,400, she said. Amputations cost $1,500 to $1,700.

That’s why pet owners now buy insurance, said Bob Vetere, president and CEO of the American Pet Products Association. It was relatively unheard of just a decade ago.

“People just humanize their pets; they treat them like small furry members of their family,” Vetere said.

Dogs tend to be insured more often than cats. But coverage for both has grown in recent years. In 1998, 1 percent of all dog owners and no cat owners had insurance. In 2010, 4 percent of dog owners and 1 percent of cat owners had insurance, according to results from an APPA survey. That’s about 3.1 million insured dogs in the United States and 800,000 cats. The pet insurance industry was expected to top $500 million in total revenues in 2012, according to APPA statistics.

Pets Best keeps its advertising budget small, a lesson Stephens learned from his first company. While Pets Best does some marketing, word of mouth and Internet searches bring in far more customers than any advertising campaign ever has, he said. To keep costs down for monthly insurance bills to customers, usually about $35, advertising no longer makes the cut.

“For us to spend millions on advertising, (customers) would have to spend $100 a month,” Stephens said. “We just haven’t had enough return.”

Technology has also helped keep costs down and competitive with more established pet insurance agencies, like the original company founded by Stephens, VPI Pet Insurance, where he no longer has a stake. Many of the claims processes are now automated.

Some things, like customer service, can’t be replaced with a machine, however. Stephens said he learned that the best way to recruit new customers was to provide good customer service. The company has a 24-hour service phone line for people who need to make an emergency pet claim.

Competition is getting stiffer. Vetere said some major insurance companies are looking at ways to launch pet insurance as a universal option for the classic health, automobile or life insurance policies. Some have been working with Vetere’s organization.

“If the trend continues going the way it’s been going, then I think you’re going to see more big players entering the marketplace,” he said.

At this stage of the industry, Stephens welcomes competition. He said it publicizes the idea of pet health insurance. As the competition grows, so does the market size, he said.

The next step for Pets Best is figuring out how to get a bigger piece of the bigger pie.

One way is to court cat owners, who have traditionally neglected insurance. Pets Best issues 81.7 percent of its policies to dogs and 18.3 percent to cats. Stephens said new policies structured specifically for felines are becoming more popular.

“Before, cat owners thought cats never got sick and didn’t buy pet insurance,” Stephens said.

Pet insurance is still costly. Vetere recommended pet owners shop around.

“It’s not cheap by any stretch of the imagination, at least not yet,” he said.

Plan prices vary by breed, age and medical history, but a healthy young golden retriever would cost about $30 a month for a popular Pets Best plan that covers illnesses, accidents and cancer. The deductible would be $200 for the year, and the policy would have an annual expenditure cap of $5,000.