The right software solutions allow brokers and policy writers to bite back

by Mark Colonnese

The pet insurance industry is facing unprecedented challenges. Some providers and brokers have expressed concern about new legislation (AB 2056), which aims to tighten up the market. It’s awaiting approval in the California State Senate. The unease is understandable. But, in the long term, greater clarity can only be a good thing for the industry, brokers, and policyholders.

Often perceived as the poor relation to more traditional forms of insurance, the pet insurance market is growing and has, as yet, untapped potential. With just 1% of America’s pets insured in 2012, the total bill for premiums came to $475 million to $500 million, according to the North American Pet Health Insurance Association (NAPHIA). Yet this pales in comparison to the estimated $15.25 billion Americans who are set to pay for care of their pets this year. The challenge is to deliver the same high standards for pet insurance as are applied to other traditional markets, but without cutting corners or increasing policy price.

American consumers tend to assume that pet insurance would offer all the same benefits for their animals as human health insurance policies do for people and that the two are on par, but that has not been the case. As opposed to health policies for humans, pet insurance falls under property insurance as an insurable risk. Hence, everything from hidden coverage limits to unexplained exclusions for pre-existing conditions and hereditary diseases may be buried away in the small print.

With veterinary costs rising, more of us are choosing to insure our four legged friends and other pets. This has led to the pet insurance market becoming increasingly competitive, with brokers being called upon to offer a range of products and programs that mirror or are at least more in line with what is expected from human insurance plans, rather than being categorized under property insurance.

The U.S. Equine and livestock insurance markets, while significant, have considerable room for growth in their own right. The Equine market is over 30 years old, but with only 17% of six million horses insured, there remain huge growth opportunities. In 2011, livestock insurance totalled over $1 billion — a massive number, but not when you consider U.S. farm sales of livestock totalled over $160 billion in the same year. While not in this league, pet insurance is rapidly playing catch up. Insurers and brokers placing business across a range of markets are waking up to the fact they need to step up to the plate when it comes to delivering the same professionalism in pet insurance as in other market sectors. The potential the industry affords means pet insurance can no longer be viewed as a pet project.

California’s Department of Insurance received complaints from pet parents claiming that insurers were dragging their feet in settling claims, unexpectedly denying coverage based on pre-existing medical conditions, or paying out considerably less than was seemingly due when a claim was made. Such situations tend not to be the fault of the broker or policy provider, but often stem from poor systems and a vacuum when it comes to policy and regulatory guidance. Yet all these issues can be easily and cost effectively rectified.

Capable technology platforms are essential to maintain public trust if this industry is to realize its full potential. Such systems need to address this issue and the other key challenges facing the industry as well as the approach to its customers. Inflexible systems that do not keep the customer in the loop and unclear terminology and regulation can leave customers confused, when they need to know what is involved in price and billing — in short, the kind of deal they are getting for their dollar. Any gray areas can knock public confidence in what is becoming an essential product for all pet parents, particularly as new treatments push up the cost of veterinary bills.

Not all pet insurers and brokers have the same technical requirements, but they do face many of the same operational policy and claims administration challenges. It is now perfectly possible to source systems that are customized to broker/ client requirements.

When it comes to delivering insurance products in a growing, developing market with multiple regulation and cover drivers, vendors and brokers need the means to create new products quickly, which requires a high level of flexibility. For pet insurance, there is a need to address the very different needs of various species. The data needs to facilitate more intelligent pet risk rating. This can make the crucial difference between having high claims costs and being able to deliver a profitable, yet attractive, premium to policyholders.

There is a real need to be able to work with brokers to deliver products that are attractive and meet the needs of their clients and their pets, especially using employee benefits as a key channel. Sales will stagnate if customers cannot see what they are getting for their money. They need to see they have been sold the right policy at the right price and should they need to call upon it, it will not let them down. Pet insurance is in its infancy and needs to build a strong reputation. The negative and potentially damaging stories coming out of California do not help, which is why brokers and others should not fear legislation.

Unexpectedly denying coverage or seeming to pay less than due helps no one. The right software can prevent this by delivering greater operational efficiency through strategies, such as electronic claims notification direct from the veterinary hospital to the insurer. All things the customer does not see, but serve to deliver them less of a sale and much more a service they can depend on.

A big worry in the U.S. and overseas concerns claims leakage; this is where effective software comes into its own. While on one side, customers need to receive what their policy entitles them to, on the other side insurers need to know that they are not paying out more on claims than is necessary. Otherwise, the spectre of premiums increasing would be a consequence.

A broker needs to be confident the system is accepting the information they need to see covered and meets any state level or other regulatory framework. And, should a claim come through, the insurer needs to know that it is paying out on the correct parameters and that the customer is aware of what these are when taking out the policy and when a claim is generated. It is in everyone’s benefit to have effective underwriting and a fair claims assessment process. For this to happen, accuracy is needed across the board.

There is a real need to manage the complexity in servicing the insurance market as a result of the state filing system. The NAICs Statement of Intent document, back in 2000, outlined some important efficiency initiatives including addressing speed-to-market issues. While welcome, the right software can facilitate much of this work. Automation makes much of the essential form filing easier and significantly improves turnaround times while reducing the number of hours staff members are tied up in doing basic administration.

The pet industry is largely unregulated, but with the right systems there is little to fear from increased regulation. No one wants animal insurance to be deemed something out of the Wild West. Many providers, these days, work across states and indeed across continent, which is partly why the industry has remained broadly neutral in response to the California bill. With only 10 primary pet insurance providers, brokers will remain a big part of this process, but the number of providers will increase as pet insurance becomes more desirable. As Veterinary Pet Insurance (VPI), currently the largest US provider, has endorsed regulation, others will fall into line.

Critics have said that such regulation will give those in the industry more to do, by making specific provisions for certain states and not others but this is where a flexible business system comes into its own. Sure, requiring insurers to provide customers with a list of deductibles, exclusions, annual limits and reimbursement formulas looks onerous and a bit unnecessary. The insurance commissioner already has the power to require pet insurers to get licences and submit premiums for approval. But with flexible software, these days it’s no big deal. Critics fear that a raft of new regulation could force up premiums. But again, this would only be the case for those companies not having systems capable of handling such changes.

Successful organizations should be able to adapt to grow as business grows and contract as necessary. Regardless of any bill in any legislature, customers can vote with their feet if insurers cannot offer easy to understand policies that provide real value. To ensure that the customer is clear about their policy at every stage, insurers must have systems in place to identify areas that could lead to exclusions and then inform the customer. Clarity is key to satisfied customers; and a satisfied customer is one more likely to go for renewal when the year is up.

Each insurer has different ways of operating, and a one-size-fits-all approach simply does not live up to expectations. When it comes to identifying exclusions in policies, each insurer has different criteria, which a flexible software system can accommodate by giving greater clarity to customers and improving the customer experience. Technology platforms have been developed for every aspect of pet insurance, including that vital first step explaining the policy details exactly. By providing clear and reliable information about the policy, customers should be left in no doubt about what their insurance covers. If regulation sorts out the wheat from the chaff by eliminating bad actors and creating industry standards, it’s not a bad thing. Cowboys give everyone in the industry a bad name and conditions that force them out is good news for all professional insurance providers, brokers and clients and, more important, their pets.


Mark Colonnese is VP of Sales and Marketing for Anglo-American pet technology experts Aquarium Software Inc. Mark has extensive blue-chip experience, having previously worked for IT consultancy LogicaCMG and latterly and then as product manager at mentor Graphics, a leading US software vendor. Mark holds a Masters degree and a Diplome d’ Ingenieur in engineering, speaks fluent French and lives in Oxford. For further information contact Aquarium Software Inc, on +44 (0)161 927 5620 or visit