“Going to the Dogs”

1. “Going to the Dogs” Or: How a Health Actuary Can Add Value to Pet Insurance Pricing Presented by: Jennifer Dix, FAC June 2011 Pricing Pet Insurance

2. Intro quiz: Which country has the highest % of pet owners with pet insurance? A. Sweden B. United States C. England Pricing Pet Insurance

3. Answer: % of pet owners with pet insurance: Sweden: 50% England: 25% United States: <1% Pricing Pet Insurance

4. Topics to be covered: • History, competitive environment and plan design • Pricing different plan designs using claim probability distributions • Pricing benefits using actuarial cost method Pricing Pet Insurance

5. History • First offered in US in 1982 • Up until 2006 basically just 3 competitors: VPI, Hartville and Pet Care • Since then about 10 new companies entered the market Pricing Pet Insurance

6. Market Share Pricing Pet Insurance

7. Market Growth • As of 2009, about 850,000 million pets insured at total cost of $330 million • Premium has grown about 20% per year for past 5 years • Growth of new sales expected to accelerate once economy rebounds Pricing Pet Insurance

8. Competitive Climate • Emphasis on consumer and customized plans through: • More plan design offerings • Increased reimbursement levels • Greater disclosure • Customer online reviews and increased regulatory scrutiny holding insurers accountable Pricing Pet Insurance

9. Coverage • Pet owner submits vet fees they paid and plan reimburses up to some maximum: • Can be fixed fee schedule, % of vet charges or some level of R&C determined by insurer • R&C may be based on % of American Animal Hospital Association (Vet fees published every 2 years) • R&C could also be based on company data Pricing Pet Insurance

10. Coverage • Typical coverage levels: • Accident only • Accident and sickness • Accident, sickness and wellness • Pre-existing conditions excluded Pricing Pet Insurance

11. Plan Design • Varying deductible levels and coinsurance • Per incident limits • Annual maximums • Coverage for congenital/hereditary conditions (?) • Continuing Care endorsement Pricing Pet Insurance

12. Pricing – Rating Variables • Species (cats, dogs) • Age • Breed • Geographic area Pricing Pet Insurance

13. Claim Probability Distribution • Can be used to price varying: • Deductibles (~$100 ~ $500) • Annual maximums (~$1500 ~ $5000) • Coinsurance levels (70%, 80%, 90%) Pricing Pet Insurance

14. Claim Probability Distribution • Separate table for each species, plan design level and area • For each claim, take allowed amounts and trend to pricing period • Sum all claims per pet over 12 month period • Bucket into ranges of cost (i.e. $50 increments) Pricing Pet Insurance

15. Sample CPD Pricing Pet Insurance

16. Actuarial Cost Model • Useful for pricing wellness benefits, assuming not subject to deductible • Determine projected cost and utilization by service type • Cost for each service may be defined by benefit schedule Pricing Pet Insurance

17. Actuarial Cost Model Sample Pricing Pet Insurance

18. Similarities to human health insurance • Plan design (deductibles lower for pets) • Rating variables • Levels of coverage • Modeling techniques Pricing Pet Insurance