Pet Insurance

An article came out recently which said that whereas 7.1% of dog owners have pet insurance only 3.8% of cat owners take up insurance.

An open question is whether this is due to lower costs related to surgeries, burials and whatnot for cats, whether in the premium rates there is excessive cross subsidization between cats and dogs or perhaps us cat lovers simply don’t love our cats as much as dog lovers!

In our own work we have one client who sells coverage for dogs and cats. This requires us to determine a mortality table for cats and dogs and determine such things as variation in life expectancy by breed (it is significant!), effect of country in the statistics (one of the best studies is in relation to Swedish experience, but how do we need to adjust this for Asia?) and even anti-selection (dog owners will actively hunt for their dogs when they get out of the house, but somehow us cat owners assume the cat is smart enough to find their way back!).

Looking at the data in the article on Australian experience, income seems to play a role in the take-up of pet insurance, as individuals with an income of at least A$50,000 ($36,800) per annum account for 56.4% of those with pet insurance and only represents 35.5% of the population, and with those earning over A$200,000 per annum being four times as likely to have pet insurance as the average Australian. Females appear to be more concerned about their pets than males, representing 59.8% of the purchasers of pet insurance.

The crude probability of death overall varies significantly by study, which is likely due to the mix by breed and whatnot. One study in the US gives the crude death rate of cats to be 0.083 and for dogs to be 0.079. Cats tend to have more litters than dogs but once alive the mortality rate is similar. In our pet mortality study for our client, we assumed an average life span of 6 years for both dogs and cats but noted that as more experience in Asia develops it will be interesting to fine tune these mortality rates by breed as well as attained age. We can then further fine tune the pricing based on other factors such as anti-selection and whatnot. For instance, if the pet insurance is sold by vets will they be more likely to recommend pet insurance to sicker or higher risk pets?

In terms of coverage, we can use as an example MSIG’s pet insurance coverage for Malaysia. There are three plans available with coverage as follows:

  • Medical benefits: veterinarian and surgical fees coverage ranging from RM2,000 for plan one up to RM5,000 for plan three.
  • Death benefit: ranges from RM2,000 for plan one up to RM5,000 for plan three.
  • Burial costs are fixed at RM1,000 for all plans.
  • Advertising and reward costs for missing pet: RM1,000
  • Boarding fees coverage range from RM1,000 for plan one up to RM2,500 for plan three.
  • Third party liability ranges from RM50,000 for plan one up to RM100,000 for plan three.
  • The premium rate is RM200 per annum for plan one up to RM500 per annum for plan three.

As an actuary we both price and purchase insurance ourselves based on the extent of potential losses which are not easily covered using our own resources. Out of the above benefits the one benefit which would not easily be covered using our own resources is the third-party liability. Should our pet bite or otherwise injure a third party or cause property damage this could get quite expensive in legal costs as well as medical bills and cost of lost days from work for the person bitten. Here it is clear that pet insurance clearly provides more value for dogs than cats, answering our original question in this article.

One of the beauties of being an actuary is to use our actuarial skills and knowledge to develop new and exciting products to help the community deal with losses which would be difficult for them to bear using their own resources. It’s just up to our imagination to find interesting and useful products and use our knowledge of the actuarial control cycle and other skills to add value!

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