Research and Commentary: Pet Insurance as a Policy Model

Published May 8, 2012

According to 2011–12 statistics from the Humane Society of the United States, U.S. residents own approximately 78.2 million dogs and 86.4 million cats. Insurance industry experts estimate, however, that only between 1 and 5 percent of these companion animals have insurance policies for their health care purchased by their owners. 

Although pet owners, on average, pay annually only between $200 and $300 for wellness care for uninsured healthy animals, major procedures such as cancer treatment, hip replacement surgery, and even laser eye therapy can cost thousands of dollars. 

This is likely the least regulated broad health care system in the country. Most states regulate it as a form of the “inland marine” property insurance used mostly to cover trucking. There are no price controls or benefit mandates. Although the market is much smaller, most states have more companies selling individual pet insurance policies than sell individual human health insurance policies. 

Some types of pet insurance are similar to human health insurance, offering comprehensive coverage for injuries, illnesses, emergencies, surgeries, x-rays, lab fees, tests, and prescriptions, as well as preventive care, but others are much more basic and limited. Comprehensive plans can be very expensive; basic plans may leave owners with bills they cannot afford for common yet expensive procedures such as surgically removing a tennis ball a dog has swallowed. Individuals choose whichever coverage they prefer, or none at all. 

As veterinary medicine continues to advance and offer better care options for animals, pets’ human caretakers have to weigh a variety of economic and emotional factors in making their decisions about insurance. Likewise, the pet insurance industry evolves to meet the demands of pet owners. The success of this industry relatively unencumbered by government intrusion can help policymakers better understand the benefits of restoring market forces in the human health care insurance industry. 

The following articles examine pet insurance from multiple perspectives. 

Pet Insurance
The Insurance Information Institute offers a good overview for anyone wanting to learn more about pet insurance. Without taking a position on whether pet owners should insure their pets, the article outlines three different types of animal health coverage commonly available, as well as options for animal life insurance, animal theft coverage, and homeowners and renters insurance covering liability claims and stolen pet supplies. 

Pet Insurance—Essential Option?
With increasing numbers of people viewing their companion animals as members of the family, veterinarians “owe it to our clients to make them aware of both the rising costs of veterinary care and the alternatives for handling these expenses,” this paper argues. Notwithstanding caveats such as the potential for creating a two-tiered system of care (for insured and uninsured animals), for insurance companies to “control” care, or for pet owners to buy services they do not want or need, the author contends pet insurance “may be a savior to some families whose budget is stretched to the limit at a critical moment in the health care of their cherished pet.” 

A Health Insurance System that Works
Eli Lehrer of The Heartland Institute discusses the growing pet insurance industry and argues it offers a vital model of comparison for proponents of free markets when evaluating what will and what will not work in reforming health care insurance for humans. He acknowledges most Americans resist the notion of putting a dollar value on human life, yet some aspects of human health care—for example, wellness care and non life-threatening injuries—could benefit from a system “that treats individuals’ bodies like pieces of personal property.” 

Should You Buy Pet Insurance?
Liz Nelson begins with a disclaimer: “Most people are better off forgoing pet insurance and instead putting the money they would have spent on premiums into a savings account” to be used for future vet care. However, she continues, “if you’re the type of person who would do anything to save your pet, including spend thousands of dollars on medical care, pet insurance might be a preferable alternative to going into debt.” She discusses the many new treatments available and their high cost, plus some of the most expensive routine procedures. 

Pet Insurance: a Good Deal? Or a Rip Off?
Author Herb Weisbaum notes the decision to purchase pet insurance involves both financial and emotional considerations. He confesses he and his wife view their dog as a member of the family and will spend “whatever it takes” to make sure he has the best care possible, including expensive procedures by veterinary specialists. However, although Weisbaum advocates pet insurance generally, he favors policies with low premiums and high deductibles, which cost less on a monthly and yearly basis yet provide peace of mind a pet will be taken care of in the case of an expensive emergency or serious illness. 

Is Pet Insurance Worth the Price?
Consumer Reports addresses pet insurance as a personal finance issue and suggests a better use of money paid in premiums would be to set it aside in a savings account. The primary disadvantage of pet insurance is that it is a form of “forced savings” that almost never covers the entire cost of care. If pets end up getting only routine vet care within any given year, money set aside and not spent on insurance belongs to pet owners rather than insurance companies. The risk, of course, is an emergency or serious illness will mean paying a lot out of pocket or potentially premature euthanasia. However, Consumer Reports concludes, over a pet’s lifetime, paying for insurance can end up costing thousands of dollars more than paying out-of-pocket. 

More Owners Buy Pet Insurance for Furry Pals
Reporter Sarah Meehan begins by giving an example of a dog owner who appreciated having pet insurance when her dog swallowed a corn cob and needed surgery costing $3,600 to remove it. However, animals eating foreign objects—something they have always done—is not the reason pet insurance today represents a steadily growing market. Instead, Meehan explains, in addition to the trend among pet owners to view their animals as members of the family, veterinary medicine has become much more sophisticated and akin to human medicine in terms of the types of procedures and treatments available and the rising costs associated with them. For these reasons, industry experts expect the market to continue to grow in the future. 

With Tigers Living Next Door, Exotic Pet Insurance Business Soars
Health coverage for cats and dogs is not the only pet insurance market experiencing growth. Increasingly, owners of exotic animals such as monkeys, tigers, snakes, and zebras are purchasing even more specialized insurance products for the unique needs of their pets in response to rising costs for appropriate care and stricter state and federal regulations for keeping these animals. Reporter Matt Gutman writes about the thriving business of Mitch Kalmanson, “the wild animal insurance guy, selling sometimes gigantic, multimillion-dollar policies to insure the owners of nature’s most ferocious animals and seemingly uninsurable exotic pets—some of which might live right next door to you.” Kalmanson sells primarily liability coverage, but within the “rare trade” of insuring wild and exotic animals, he “will probably insure almost every risk” for the right price, he says.

Pet Insurance Gains Popularity
After a general description of pet insurance and the growing market trend it has had in recent years, reporter Rex W. Huppke outlines some of the similarities and differences between pet health care insurance and human health care insurance. Although pet owners sometimes run into similar obstacles involving disputes over preexisting conditions or reimbursement amounts, pet insurance, unlike human health coverage, is a form of property and casualty insurance. 

Pet Insurance—a Costly Necessity
Pet insurance is still a relatively new product with only about 1 percent of pets insured in the United States in 2012. However, advances in technology, rising costs of care, and changing attitudes towards companion animals lead experts to predict industry revenues will more than double between 2009 and 2014.