Pet insurance surges as vet costs rise

Elizabeth Brown spared no expense in seeking treatment for Maggie, her yellow Labrador retriever who was diagnosed with cancer in 2003. Radiation treatments and surgeries added up to more than $4,200 before Maggie died in 2008. The experience prompted Brown, who is retired and lives in south St. Louis County, to buy a pet health insurance policy for $90 a month when she later brought home a puppy named Caramel.

Faced with the increasing price of medical care, more pet owners are now pulling out insurance cards when visiting the veterinarian's office. Pet health insurance has been available in the United States for nearly 30 years, but expanded veterinary treatments and changing attitudes toward the family pet have bolstered the number of policies over the last decade, even during the economic downturn.

"The humanization of pets is driving it, as people are more likely to treat pets as four-legged members of their family," said Grant Biniasz, a spokesperson for VPI Pet Insurance based in Brea, Calif., the largest pet insurance provider in the nation.

The growth has drawn several new insurance providers into the market in recent years, including St. Louis-based Nestlé Purina PetCare. The company started its PurinaCare insurance subsidiary in 2008 and has since expanded coverage to all 50 states.

Pet insurance has grown at a glacial pace in the U.S., but it has gained speed in the last decade. Three percent of the nation's 78 million dogs and 1 percent of its 93 million cats are now covered, according to a recent American Pet Products Association estimate. That's up from 1 percent of dogs and virtually no cats covered in 1998.

How much could this industry grow? Insurance has gained wider acceptance in some European countries, such as the United Kingdom, where 20 percent of pets have policies, and Sweden, where it's estimated at least 30 percent of pets are covered, according to New York-based research firm Packaged Facts.

PurinaCare believes that eventually 10 percent of U.S. pets will be covered by insurance. Changes in people's social support systems — higher divorce rates, fewer children and people living farther away from their families — has helped drive this trend, said James Serpell, a veterinary ethics professor at the University of Pennsylvania's School of Veterinary Medicine.

"We're using animals to replace what we're losing in human social relationships," he said. With that evolution, pet owners now expect medical care for their pets to match medical care for themselves. "People ask now, 'Why can't my dog get dialysis?' People increasingly think health care they get from their vets should be like what they get for their children," Serpell said.

Yet, veterinary care isn't cheap. It's second only to food in the amount people spend on pets. Of the $50 billion expected to be spent this year on pets, $14.11 billion will be for vet bills, up from $13 billion last year.

GROWING MARKET: In 1982, VPI Pet Insurance issued the first pet insurance policy in the United States. VPI has long dominated the industry, but it has lost market share in recent years as more providers emerged. VPI had 52 percent market share in 2009, according to Packaged Facts, down from 68 percent in 2005.

"They sort of had the party to themselves until 2004-2005, when new companies started entering the market with new plans and pitches," said David Lummis, senior pet market researcher for Packaged Facts. The number of pet insurance providers in the nation doubled over the last decade from six to a dozen in 2010.

Among the newcomers is Nestlé Purina. After studying the pet insurance market for three years, the company felt it could be competitive by drawing on its experience and research in pet health.

According to company executives, a void existed in the market for people to access information about what pet policies covered. Nestlé Purina posts copies of its policies online for customers to view. The potential exists for Nestlé Purina, which is owned by Swiss-based Nestlé, to grow its insurance business globally.

"Other Purina subsidiaries around the world have expressed interest in pet insurance, but our current focus is limited to the North American market," said Dr. David Goodnight, a veterinarian and president of PurinaCare, based in San Antonio.

Nestlé Purina wouldn't disclose PurinaCare's revenue or market share. But Packaged Facts estimates it has less than 1 percent of the North American pet insurance market. Pet insurance revenue in North America totaled $354 million in 2009, up from $310 million in 2008, according to a Packaged Facts estimate.

The emergence of a global consumer products conglomerate of Nestlé's size in the pet insurance market is a sign of the market's strength and growth potential, Lummis said. "Nestlé Purina is a very cautious, conservative company, and they really look before they leap," he said.

Its rivals include pet retailer PetCo and the financial services division of grocery chain Kroger. There's speculation that Wal-Mart will introduce a pet insurance product at its Canadian stores this year.

"I think that the tipping point will be when big retailers get into it, and we're right on the verge with retailers exploring it," said Kristen Lynch, executive director of the nonprofit North American Pet Health Insurance Association, whose members include pet insurance providers.

PRICE SHOCK: Monthly pet insurance premiums can start at around $10 but can exceed $100 for some older dogs. Pre-existing conditions are typically excluded, and pet owners are reimbursed after submitting claims.

Providers' policies vary. Some of the higher-end preventive plans cover heartworm and flea medications in addition to vaccines and annual exams. Some of the lower-cost plans just provide coverage for unexpected accidents and illnesses.

A $1,180 vet bill for a dog's broken leg under VPI's Super Plan, for example, will reimburse the pet owner $1,002. With a lower monthly payment, VPI will reimburse $626 of the vet's bill.

Nestlé Purina tweaked its offerings last year to include a plan that allows pet owners to pay lower premiums in exchange for bearing a higher percentage of the bill, between 30 percent and 40 percent of eligible expenses.

Despite the cost, more pet owners are taking out insurance policies to avoid price shock at the vet's office.

"Nobody's expecting a big pet bill, and then all of a sudden, they have a big problem like a car accident (involving the pet) or illness," said Dr. Wayne Hause, a veterinarian in Bridgeton who specializes in clinical oncology and neurology.

Visits to his office start at $120 but can quickly add up to several thousand dollars when multiple procedures are performed. More people are coming to his practice with pet insurance policies, although pets covered with insurance still total less than 10 percent of his clients, he said.

"The people that walk in with pet insurance are much happier, because they can take the financial aspect out of decisions relating to their pets," Hause said.

Dr. Noelle Miles, a veterinarian in Millstadt and president of the Greater St. Louis Veterinary Medical Association, said treatment for some chronic diseases such as cancer can cost pet owners more than $300 a month. Many pet owners are willing to pay the cost, with or without insurance.

Consumer Reports' Money Adviser newsletter published an article last fall with an analysis of four pet health insurers — VPI, ASPCA Pet Health Insurance, 24PetWatch QuickCare and Trupanion — and concluded that for generally healthy animals, pet insurance isn't worth the cost. For most owners, establishing an emergency fund for unexpected pet bills is a better choice.

Still, for young pets that develop a chronic condition or illness after the policy is in place, having the policies paid off, according to the report.

"The main thing is, whenever you're shopping for those plans, it's important to look very carefully at the fine print and look at all of the exceptions," said Tobie Stanger, a Consumer Reports senior editor and author of the report.

For Brown, who paid several thousand dollars out-of-pocket for vet bills, the peace of mind in knowing she won't face unexpected veterinary expenses is worth the price of a monthly premium. "I like that it pays for shots, and when Caramel did need to seek treatment for a dog bite, I was reimbursed promptly," she said.