Recent progress by the National Association of Insurance Commissioners to provide more specific detail on individual property and casualty lines of business in annual and quarterly statement blanks could still benefit from the addition of a separate line to capture the one of the fastest growing niches in the industry.
Jab Holding Co. SARL’s June 20 agreement to acquire Crum & Forster Pet Insurance Group and a subsidiary of Fairfax Financial Holdings Ltd. for the combination of $1.15 billion in cash and $250 million in vendor notes was a reminder of the rapid expansion and significant market opportunity that has been associated with the pet health business.
The increase in the number of pet owners during the pandemic, coupled with rapidly rising veterinary costs, provides fertile ground for business expansion with a low penetration rate in the US market compared to other developed economies.
Regulatory changes in how the product is classified could provide additional insight into business growth and profitability while potentially providing new and existing underwriters the opportunity to grow at an even faster rate.
In an effort to promote consistency in reporting, the NAIC has implemented standard industry information in Parts 1 and 2 of the Quarterly Statements as well as in the Underwriting and Investments Table, Status Pages and the annual statement insurance expense schedule.
Changes included the addition of 16 new rows of premium and incurred loss data on the blank quarterly statement to break down reporting at the line of business level in a way that is generally consistent with some annual statement disclosures . What used to be private passenger motor liability in the quarterly statements is now split into no-fault professional liability and other private motor liability, for example. Accident and sickness insurance categories now align with those used on health record forms, including the creation of separate lines for dental, disability, vision and long-term care insurance.
The additional granularity has already proven essential as the industry tries to understand the extent to which economic inflation has driven up loss costs in the private auto bodily injury business, one of the lines that is newly broken down on a quarterly basis. But it also highlights a growing need to make pet insurance a separate offering as opposed to its current status as one of many lines classified as a domestic maritime business, as the industry’s presence in several newly added rows is significantly reduced.
The The North American Pet Health Insurance Association reported that gross premiums for pet insurance written in the United States were $2.52 billion in 2021. If we were to generally assume that most of these business were underwritten on a direct basis, pet insurance would have ranked 27th out of 46 lines of business that appeared on the 2021 Annual Returns status pages. The Homeland Navy, which includes coverage for certain types of watercraft as well as a mix of other coverage that includes animal mortality and some forms of travel and event cancellation insurance policies, ranked ninth with total direct written premiums of 29.82 billion of dollars.
Pet insurance looks set to take on an even bigger position as it can continue to grow at rates well above those of the US P&C industry as a whole.
Big gets bigger
Based on a combination of disclosures in the 2021 Annual Returns and recent rate filings, we were able to arrive at an estimate of over $2 billion in direct pet insurance premiums reported on the line. domestic shipping: $634.8 million for American Pet of Trupanion Inc. Insurance Co., $282.0 million between Westchester Fire Insurance Co. (PA) of Chubb Ltd. and Indemnity Insurance Co. of North America (PA), $176.6 million for Veterinary Pet Insurance Co. of Nationwide Mutual Insurance Co., $172.8 million for American Modern Home Insurance Co. and $145.4 million for XL Specialty Insurance Co. of AXA SA, among others, including the relatively recent market eentering Lemonade Inc.
United States Fire Insurance Co. Inc., the Fairfax Financial company that serves as the underwriter for pet insurance products underwritten using the brands ASPCA, Hartville, Pumpkin, Petco Health and Wellness Co. Inc., Roamly , Doggo and Spot, reported $296.4 million. in domestic marine direct premiums written in 2021. North River Insurance Co., another Fairfax financial company that underwrites pet insurance in partnership with affiliate Pethealth Inc., reported $33.6 million in direct premiums domestic shipping underwritten in 2021. Pethealth, which will be sold as part of the pending merger and acquisition agreement, operates under the 24Pet brand.
Both carriers have other active policy forms as part of the domestic marine line and pet insurance does not fully account for their total domestic marine paperwork. A recent rate filing showed that pet insurance accounted for 71.2% of the $33.3 million in United States Fire domestic marine direct premiums earned in California in 2020. Travel and blood coverage accounted for the vast majority of the rest.
Independence American Insurance Co., which is ultimately controlled by the same investor group that acquires the Crum & Forster Pet business, generated $101.3 million in domestic marine direct premiums written in 2021. But that doesn’t entirely hold up account of its pet insurance business based on the $133.3 million in direct written pet health premiums associated with four managing general agencies, as shown in note 19 of its 2021 annual statement .
In the June 20 announcement, Jab Holding estimated that combined gross premiums written and pet health services revenue from its global pet insurance and ecosystem platform would exceed $1.2 billion by 2023.
A proxy statement filed in conjunction with a series of transactions in 2021 predicted that Independence Pet Group would generate $243 million in revenue in 2023 with an associated agency that integrates traditional and technology distribution would generate $51 million in revenue that year. . Jab Holding too holds positions at several pet health care service providers, including National Veterinary Associates Inc.
Options under consideration
The deal announcement referenced data from the North American Pet Health Insurance Association that showed year-over-year growth rates in U.S. premium volume greater than 20% in each of the four years, with the pace of expansion increasing to 27.5% in 2020 and 30.4% in 2021. Total direct premiums written for the United States Inland Navy increased by 26.3% between 2017 and 2021 .
Pet insurance penetration rates in the United States were 3.9% for dogs and less than 1.0% for cats, the organization said, leaving plenty of room for future rise. There has also been strong pressure to increase tariffs in an inflationary environment where the consumer price index for veterinary services rose 7.4% in May. S&P Global Market Intelligence has secured 73 requests for double-digit increases in pet insurance rates year-to-date through June 23, including 16 from Lemonade Insurance Co. This does not include results of Florida where pet insurance rates must be filed on a separate trade from livestock and live animals.
Assuming the business continues to grow by 20% per year, which seems plausible in a scenario characterized by significant increases in exposures and prices, it would exceed $6 billion in annual premium volume by 2026.
The implications of the company’s rapid expansion have not gone unnoticed by regulators.
Minutes from an April 2021 meeting of the NAIC Pet Insurance Task Force show that the Rhode Island Department of Business Regulation reviewed whether the domestic shipping line remained the place most appropriate for the company, given that some of its elements more closely resemble humans. health insurance than home insurance.
Physicians Mutual Insurance Co., a health insurance and dental supplement business provider that files life and health statement blanks, has changed its Certificate of Authority to P&C in its home state ahead of the recent launch of its pet insurance product.
While there may be similar complexities associated with a new pet insurance designation, minutes from a December 2021 meeting showed support for at least finding a way to disclose data associated with company on the annual statements.
Trupanion CEO Darryl Rawlings predicted in his latest annual letter to shareholders that the NAIC could give pet insurance its own category within five to ten years. In addition to the transparency sought by some regulators and consumer groups, Rawlings predicted that such a change could lead to greater leverage for the industry.
Trupanion’s current capital requirements for the business are about 5:1 based on Homeland Navy classification, Rawlings said, and the company’s primary insurance unit has managed a premium ratio net underwritten to average capital and surplus of nearly 6:1 in 2021.
“While we don’t want to speculate too much, we believe [a separate designation] will result in better leverage than what we see today,” Rawlings wrote. “If and when that happens, we would expect to be able to self-finance higher growth rates than we can today.