Pet Insurance: Seven Key Themes for Growth in a Hot (and Getting Hotter) Market
The needs of pet owners offer a golden opportunity for the insurance industry. We explore steps that insurers can take to create new products, cross-sell existing services and maximize their presence in this exciting market.
In the midst of COVID-19, pandemic puppies and kind kittens have emerged as go-to companions to get us through the extended public healthcare crisis. This is one of the many reasons that pet insurance is touted as the next hot growth segment for personal insurance carriers, with the global market projected to surpass $10 billion by 2025 and grow 6.7% annually.
In this rapidly changing market, we believe that most innovations are focused on the following trends:
Customer dynamics and disposition. The customer landscape has changed, with millennials now the largest segment of pet parents. They own more pets (about 35% of the total) and spend more on them than any other generation — serving them organic foods, hiring services, hosting “pet parties,” and bringing them on vacations. They also lead the charge in tech adoption and expect quick service. Such factors highlight the demand for customer-centric services that include personalized, nurturing communications and an interactive, immersive experience.
Pet techs and massive data. Pet-oriented technologies (dubbed pet tech), such as wearables, are addressing increasing concerns around pet health and security. The pet tech market includes activity monitors, GPS trackers, RFID sensors, and more. Opportunities for pet tech are vast, from automated food dispensers and climate-controlled pet houses to pet doors with facial recognition. Such devices and sensors help support a data-driven approach to underwriting and claims processes.
Innovation by insurtechs. These digitally native companies are bringing new capabilities to the pet industry, with a focus on enhancing the customer experience through such initiatives as direct-to-customer distribution and a digital claims process.
With all this in mind, we’ve identified seven diverse trends and themes that insurers should consider as they plan their entry or expansion into the pet market.
Product innovation: Change when, what and how pets are insured
Consumers may question whether pet insurance provides good value for the money spent. Some might view pet insurance as costly and confusing or may be unsure which procedures are covered, what exclusions exist, and how costs rise as the pet ages. Plus, many consumers simply don’t think they need pet insurance. All of these factors weigh heavily on the buying decision.
This presents an opportunity for insurers to create compelling, innovative product offers, wrapped in a personalized omnichannel experience. Recommended offerings include:
Risk-based or pay-as-you-live policies in which additional premiums or discounts are calculated based on the pet’s lifestyle as measured through wearable sensors or other monitoring devices.
Event-based or episodic insurance that covers specific time-bound activities such as an adventurous weekend trail walk.
With such models, insurers can underwrite risks previously deemed uninsurable and offer point-of-need prices.
Business model innovation: Look beyond traditional insurance
A digitally enabled approach to product innovation can lead to new business models, such as:
Peer-to-peer insurance. Millennials share many common interests in various social networks, and they generally have a higher risk tolerance than older age groups, which suggests they would be open to joining online communities. Peer-to-peer insurance brings together groups of like-minded people to cross-insure their pets and share refunds from their premiums based on claims made.
Cross-selling complementary services. Millennials are open to buying complementary non-insurance services from their insurers. For example, customers of Embrace can add onto the company’s rewards plan to get reimbursed for their pet’s routine care. We believe that insurers can identify prime opportunities to launch complementary services such as pet food delivery and telemedicine.
Distribution overhaul: Change how products get to market
Direct-to-consumer transformation. The personal insurance space has seen a shift toward direct buying as customers embrace ecommerce and as products become simpler. With similar trends driving the pet insurance space, it is inevitable that pet owners will turn to the direct model. The recent success of pet-care comparison sites like Chewy or PetSmart is an early indicator of this trend. Insurers must adopt a more targeted, omnichannel, digitally enabled distribution model to align with this paradigm.
Digital marketing. Millennial consumers do not respond well to traditional advertising messages, and they expect their insurers to connect with them through their preferred digital channels. Pet insurers should thus build trust and connect with millennial customers through a tailored digital marketing strategy, in part by embracing online and social media platforms. For example, sharing informational videos about pet care within these channels is a potential way to keep customers engaged and connected. Insurers must morph from being sellers of insurance that also provide pet care information to being pet care experts that also offer insurance.
Ecosystem-driven distribution. Insurers should deliver synergistic value by collaborating with other members of the pet care ecosystem: retailers, veterinarians, employers, animal shelters and breeders, for example. By partnering with such channels, insurers can better establish the true value of pet insurance and achieve more revenue and market penetration. Growing interest in the pet insurance sector from other players in the pet world also provides partnering opportunities.
Digital user experience enhancement: Transition from customer satisfaction to customer delight
Traditionally, price has been the main differentiator in the pet insurance market. With the rise of millennial customers, however, pet insurers must increasingly differentiate through an enhanced customer experience. Capturing the attention and loyalty of this segment can be challenging. Insurers need to simplify and digitize customer journeys across digital channels, and to delight customers with a 360-degree selection of value-added services beyond mere insurance.
Making this shift requires a human-centered design perspective. This involves identifying the personas of key stakeholders, tracking their user journeys, and supplying relief for key pain points, as well as opportunities for additional revenue streams across these journeys.
Core modernization: Shed the legacy
Legacy core systems of existing pet insurers were typically built, patched and upgraded to support traditional manual processes. These aging systems are bound to affect the flexibility and scalability required for success. Insurers must reimagine and modernize their core systems, rules and processes to promote flexibility, agility, innovation and speed-to-market. This effort should revolve around business capabilities, as this focus will ensure that the derived technical capacities best align with business outcomes.
Key business capabilities for pet insurers include:
Flexible configuration of products/coverages.
A flexible rules engine that allows ratings, business rules and workflows to be easily configured.
Flexible rating, pricing and billing capabilities to support newer products.
A unified dashboard view of all claims and policy details to process claims more accurately.
Integrated case histories to provide an integrated view of customer interactions.
Automated quote generation, policy binding, billing and claim processing workflows.
Seamless integration with external systems.
Document management capabilities including scanning and capture/storage.
Automated generation of omnichannel customer communication documents.
Support for all desired payment modes.
Artificial intelligence (AI)- and analytics-driven risk management and claims auditing.
Timely reporting capabilities.
Data-driven process renovation: Unlock the power of data
Pet insurance carriers can accelerate their digital evolution with advanced AI, which will enable them to automate core capabilities in new ways, such as the following:
Intelligent process automation will enable the direct issuance of low-value/low-risk policies and the straight-through processing of low-value claims. It will also help integrate optical character recognition, intelligent character recognition and deep learning technologies. Some examples: reading unstructured scanned medical bills and intake claim documents, creating an automated first notice of loss, setting an automated initial reserve, and assigning the best-fit claim adjustor.
AI will enable machine-learning-based decision support for underwriters and claim adjustors.
AI coupled with intelligent automations will also allow carriers to continuously mine case and claim data to identify fraud and security risks in real time.
The following figure further illustrates AI’s potential.
The question is, what to tackle first? New entrants in the pet insurance space are betting big on innovative claims experience capabilities as a key differentiator. With the success of this formula in other insurance lines, pet insurers would be wise to shift gears on their claims experience as well.
Loss prevention service change: From indemnification to prevention
Another potentially strong differentiator for pet insurers is loss prevention services. Pet owners’ overriding concerns are their pets’ health and security. Insurers can continuously engage with their customers and better promote safety through device- or sensor-driven alerts (which, by reducing injury claims, can in turn translate into premium discounts).
We believe that the growing use of devices and wearables provides a great opportunity for insurers; recent investments by RSA insurance are a harbinger of things to come. By enabling their systems to integrate with third-party wearable-device data, insurers will gain significant insights. They can continuously monitor these data streams and pass contextual recommendations to owners to help improve their pet’s health. Insurers could further track pet parent activities by integrating with social and online data, thus staying abreast of the pet’s risk ecosystem and delivering contextual wellness recommendations. Gamification could deliver an even more vivid experience.
The pet insurance market is rife with untapped opportunity. Insurance carriers that take advantage of these developments to innovate with new customer-centric insurance products and services will be tomorrow’s market leaders. This journey won’t be easy, given the challenges of updating legacy processes, modernizing systems and changing consumer behaviors. But designing a lean, cost-effective, digitally enabled operating model is critical, as insurers reimagine the future of pet insurance.