Veterinary Pet Insurance: Health Insurance for Our Furry—or Feathery—Friends Health insurance for pets? Until recently, MetLife, Prudential, Northwestern Mutual, and most other large insurance companies haven’t paid much attention to it. Instead, they’ve left the small piece of the insurance industry pie to more-focused niche companies. The largest of these peddlers of pet insurance (there are now 12 of them) is Veterinary Pet Insurance (VPI). And the business has become so lucrative that VPI was recently acquired by Nationwide, marking the first effort by large insurance companies to get into the business. VPI’s mission is to “make the miracles of veterinary medicine affordable to all pet owners.” VPI was founded in 1980 by veterinarian Jack Stephens. He never intended to leave his practice, but his life took a dramatic turn when he visited a local grocery store and was identified by a client’s daughter as “the man who killed Buffy.” Stephens had euthanized the family dog two weeks earlier. He immediately began researching the possibility of creating medical pet insurance. “There is nothing more frustrating for a veterinarian than knowing that you can heal a sick patient, but the owner lacks the financial resources and instructs you to put the pet down,” says Stephens. “I wanted to change that.”

Pet insurance is a still-small but fast-growing segment of the insurance business. Insiders think the industry offers huge potential. Currently, 63 percent of all U.S. households own at least one pet. Collectively, Americans own some 78.2 million dogs, 86.4 million cats, and 8.3 million birds. And that doesn’t include the hundreds of millions of pet fish, small animals, and reptiles. More than two-thirds have included their pets in holiday celebrations and one-third characterize their pet as a child. Some 42 percent of dogs now sleep in the same bed as their owners. Americans spend a whopping $55 billion a year on their pets, more than the gross domestic product of 121 countries in the world. They spend $14.3 billion of that on pet health care. Unlike in Great Britain and Sweden, where almost half of all pets owners carry pet health insurance, relatively few pet owners in the United States now carry such coverage. However, according to recent studies, 41 percent of pet owners are at least somewhat worried they could not afford the medical bills for a sick cat or dog and nearly 75 percent are willing to go into debt to pay for veterinary care for their furry—or feathery—companions. And for many pet medical procedures, they’d have to! If not diagnosed quickly, even a mundane ear infection in a dog can result in $1,000 worth of medical treatment. Ten days of dialysis treatment can reach $12,000, and cancer treatment as much as $40,000. All of this adds up to a lot of potential growth for pet health insurers. That’s why Stephens started VPI. For a monthly fee ranging from $10 a month to $35 a month, VPI touts “plans for every pet and every budget.” At the low end, plans cover accidents like broken bones and poisoning and carry a high deductible.

The more expensive plans have a lower deductible and cover all types of diseases and conditions, even genetic issues. VPI plans help pay for office calls, prescriptions, treatments, lab fees, x-rays, surgery, and hospitalization. Like its handful of competitors, VPI issues health insurance policies for dogs and cats. Unlike its competitors, VPI covers a menagerie of exotic pets as well. Among other critters, the Avian and Exotic Pet Plan covers birds, rabbits, ferrets, rats, guinea pigs, snakes, iguanas, chameleons, turtles, hedgehogs, and potbellied pigs. “There’s such a vast array of pets,” says a VPI executive, “and people love them. We have to respect that.” Unless you’re a pet owner, you may not realize the kind of mischief pets can get into.

A few years back, a VPI-insured dog got stuck in a refrigerator. While the dog chilled and waited for someone to rescue him, he took advantage of the opportunity and polished off an entire Thanksgiving ham. His owner finally found him, complete with a licked-clean ham bone and a mild case of hypothermia that needed to be treated. In honor of this pooch, VPI began giving an award each year—appropriately called the VPI Hambone Award—to the most unusual pet insurance claim. The first recipient of the VPI Hambone Award was an English bulldog named Lulu, who swallowed 15 baby pacifiers, a bottle cap, and a piece of a basketball. Others include Harley, the pug who ate more than 100 rocks; Jojo, the boxer who lost a tooth when he bit the tire of a moving delivery truck; and Peanut, the dachshund-terrier mix who somehow buried himself after losing a fight with a skunk. But perhaps Natasha, the Siberian Forest cat, presents the most harrowing survival story. Daryl Humdy of Oakland, California, arrived home just as his roommate was pulling his clothing out of the washing machine. Amongst the clothes was Natasha, shivering and crying. Apparently, while loading his laundry, the roommate went into the next room to grab more clothes, leaving the washing machine lid open. He returned, tossed in the clothes, shut the lid, and started the 35-minute cycle, detergent and all. How Natasha survived the entire wash-spin-rinse-spin process is anyone’s guess. But after being treated for hypothermia and shock, Natasha was as good as new. With stories like these happening every day, VPI is growing like a newborn puppy. VPI is by far the largest provider of pet insurance in the United States.

Since its inception, VPI has issued more than 1 million policies, and it now serves more than 485,000 policyholders. Sales have grown rapidly, exceeding $200 million in policy premiums last year. That might not amount to much for the likes of MetLife, Prudential, or Northwestern Mutual, which rack up tens of billions of dollars in yearly revenues. But it’s profitable business for small companies like VPI. And there’s room to grow. The cost of veterinary care has increased by an average of 6.8 percent over the past five years and will continue to increase in the future. More (and more expensive) procedures are being performed in specialties like cardiology, oncology, and ophthalmology. Even acupuncture, hospice, and writing prescriptions for medications like Prozac are part of a veterinarian’s regular services. Yet currently, only about 3 percent of pet owners buy pet insurance. As VPI pioneered the category of pet insurance in the United States, competitors took notice. Today, there are no less than 12 companies providing pet insurance to pet parents who want to protect the health and well-being of those they love. At one time, VPI held 95 percent of the pet insurance market. Experts now predict that within the next year, its share will be down to around 50 percent. But with the industry experiencing double-digit growth each year, it doesn’t seem that VPIs revenue growth will slow down any time soon.

But VPI continues to pioneer new ways to provide for the well-being of beloved pets. For example, VPI has worked with major employers to have pet insurance added to the list of benefits employees can choose from. Today, one out of three Fortune 500 companies offers VPI as a voluntary employment benefit, making VPI policies available to an astounding 67 million people. Companies like Chipotle Mexican Grill, Deloitte LLP, T-Mobile, and Wells Fargo have found this to be a fantastic incentive to pet-loving employees when it comes to recruitment and retention. Some companies cover the entire premium. All of them provide at least a discount on the cost of VPI’s premiums. For those who go in with their eyes only partially opened, they may be in for some surprises when it comes to getting their claims paid. Like its competitors, VPI’s policies carry limitations and exclusions, especially on the less expensive plans. Thus, there are plenty of cases where pet owners take their pets in for treatment of a disease or an accident, get sizable bills, and then find that their policies cover less than they were expecting. In some cases, they may find that the case isn’t covered at all! For example, some policies don’t cover genetic illnesses. Others may cover a lifelong illness only during the year it is diagnosed.

And then there are maximum benefit limitations that, at times, don’t come close to covering the bills. In such situations, customers often come away disgruntled, having paid insurance premiums for months or even years, only to find that they still have to pay a hefty vet bill. But online forums are also replete with stories from pet owners, like those involving Lulu, JoJo, Peanut, and Natasha, who feel that the insurance definitely paid off. Consider this glowing recommendation: I am so impressed with VPI insurance. My Labrador, Jackson, has been dealing with severe allergies for years now and VPI insurance has taken care of all his needs. As he is only 4 yrs. old, when he recently herniated a disc in his back I really had no choice but to allow him to have surgery to correct the problem. If I didn’t have VPI insurance it would have been an incredible financial burden. Not having to worry about the finances allowed me to concentrate on Jacksons’ recovery. I am even more impressed that when renewal time came around, he was allowed to renew! I love VPI! VPI can be a real comfort for policyholders. “I feel a lot better knowing that I have this coverage for my four-legged babies,” says Carrie, another happy customer. VPI claims it will always “strive to make the miracles of modern medicine affordable.” As more people become knowledgeable of VPI and share Carrie’s point of view toward their pets, it’s hard to think the pet insurance industry isn’t just beginning to stretch its paws.

Required:

1 Analyze the buyer decision process for a pet insurance customer.

2 Is the decision to buy pet insurance strictly an economic decision? Explain.

3 Explain how both positive and negative attitudes develop toward a brand like VPI. How might VPI change consumer attitudes toward the brand?

Answer rating: 100% (QA)

1 The pet insurance customer makes a decision for health insurance for his pet be it a cat or a dog basis the health condition of the animal Different ... View the full answer