This low penetration represents significant opportunities within the pet insurance sector which grew by 11.8% in 2014 (according to Timetric) driven by increases in the cost of veterinary treatment and improved public awareness of the benefits of cover. Several insurers have been testing the water in this sector, which is expected to reach £1.1billion by 2019 (Timetric). May 2016 saw the launch of a new price comparison site focused purely on pet insurance, enabling insurers and distributors to promote their products in a pet specialist environment.
The provision of pet insurance, however, does not come without its risks. The costs faced by insurers are high. According to figures published by the ABI in March 2016, pet insurers paid out a record £657 million in claims in 2015 – the equivalent of £1.8 million every day - to help the UK’s pet owners cope with the unexpected costs of owning their pet. Most of the claims were for veterinary bills.
ABI figures show that in 2015:
- The number and cost of claims reached record levels: 911,000 pet insurance claims were made, up 9% on 2014.
- The average claim was £720, while the average pet insurance premium was £241.
- Pet insurers dealt with 686,000 claims for dogs, up 11% on 2014, costing £501million (up 12%). For cats, 193,000 claims were handled, worth £105 million – a rise of 6% and 12% respectively.
The cost of pet insurance is coming under increased scrutiny from consumers and if premiums continue to rise at the current rate, pet insurance may become unsustainable for owners. A common explanation from pet owners without insurance is that premiums are too expensive. One key factor contributing to the cost of pet insurance is fraud. According to the latest available ABI figures, detected pet insurance fraud rose from £420,000 in 2009 to nearly £2million in 2014. No detected fraud figures have been published since but in line with overall market growth, fraud exposure will have increased at a minimum proportionally and it is likely that the exposure is much higher.
Five most common pet insurance fraud patterns are:
- Insuring imaginary pets: when the pet never existed, or owners discard the animal - by selling it or even killing it – and then claim a payout for early death.
- Faked accidents: when owners intentionally injure their pets in "faked accidents" to cover up pre-existing injuries or conditions that were not covered by their policy.
- Staging disappearance: scams involve staging the disappearance of an animal, because some policies pay out if a pet is lost or stolen.
- Submitting inflated charges: for expensive vet treatments that have either not actually been given, or are unnecessary or are more expensive than they need to be. In these cases vets are directly involved.
- Pet swopping: treating an uninsured pet under the name of an insured pet.
Claims related to stolen and lost pets, in particular, put pressure on insurers’ profitability. There are no official statistics determining the number of dogs stolen or lost in the country, but police reports indicate that some 2,400 dogs were stolen between 2013 and 2015 and dognapping is on the rise. From April 2016, in England and Wales, microchipping for dogs has become compulsory; owners are required to have their dog microchipped and registered on an approved microchip database. Currently, the UK has six different microchip databases making pet data more difficult to trace and adding additional challenges to fraud detection.
Robust fraud detection and prevention processes will be even more vital should pet insurance become compulsory.
Calls are being made in Scotland for it to be mandatory for dog and cat owners to purchase cover to address the suffering of animals when people cannot afford veterinary treatment – as well as the damage they can inflict to third parties by causing road traffic accidents. Should this sentiment take hold across the UK and drive legislation to introduce compulsory pet insurance, it is inevitable that the number of fraudulent claims will increase, as some pet owners struggle to meet this additional outgoing. The need to adopt a joined up approach to fraud prevention within the pet insurance market is all too clear. Only through comprehensive cross-industry collaboration will insurers be able to obtain an holistic view of the claimant and their claims history, together with the vet, their treatment records and practice information and the associated benefits to policy life cycle.
CRIF innovated and responded to this need developing and launching CACHE Pet, the industry’s first pet insurance policy and claims database; drawing on more than 15 years’ experience of providing a range of decision support systems and risk assessment solutions to the insurance market.
CACHE Pet provides insurers with a centralised platform for sharing and interrogating industry pet policy and claims data and related industry databases to support the claims investigation process. It will identify claims anomalies, serial claimants, suspect vets operating as professional enablers, and emerging fraud trends. We envisage additional data sources being made available in the future to include a full claims profile of the claimant across multiple business lines, pet microchip databases and business bureau information related to veterinary practices.
CACHE Pet integrates easily with insurers’ back office policy and claims systems and insurers’ in-house data. Accessible via batch, A2A or web browser, insurers can populate and search the database real time or offline. The service can be made available as a pay-per-click model or licence-fee based.
With access to this centralised industry database, pet insurers have the ability to manage risk far more effectively through informed claim decisions to support their customers, improve satisfaction and operate more competitively. As the market heads towards becoming better educated, insurers will achieve an improved and more insightful understanding of fraud risk associated with pet insurance.
