“going to the dogs”
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“Going to the Dogs”. Or: How a Health Actuary Can Add Value to Pet Insurance Pricing Presented by: Jennifer Dix, FAC June 2011. Intro quiz:. Which country has the highest % of pet owners with pet insurance? A. Sweden B. United States C. England. Answer:. - PowerPoint PPT PresentationTRANSCRIPT
June 2011 Pricing Pet Insurance1
“Going to the Dogs”
Or: How a Health Actuary Can Add Value to Pet Insurance Pricing
Presented by:Jennifer Dix, FAC June 2011
June 2011 Pricing Pet Insurance2
Intro quiz:
Which country has the highest % of pet owners with pet insurance?
A. Sweden
B. United States
C. England
June 2011 Pricing Pet Insurance3
Answer:
% of pet owners with pet insurance:
Sweden: 50%
England: 25%
United States: <1%
June 2011 Pricing Pet Insurance4
Topics to be covered:
History, competitive environment and plan design
Pricing different plan designs using claim probability distributions
Pricing benefits using actuarial cost method
June 2011 Pricing Pet Insurance5
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
June 2011 Pricing Pet Insurance6
Market Share
60%
12%
8%
6%
4%
10%
VPI
Hartville
Pet Care
Pets Best
Pet First
Other
June 2011 Pricing Pet Insurance7
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
June 2011 Pricing Pet Insurance8
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
June 2011 Pricing Pet Insurance9
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
June 2011 Pricing Pet Insurance10
Coverage
Typical coverage levels:– Accident only– Accident and sickness– Accident, sickness and wellness
Pre-existing conditions excluded
June 2011 Pricing Pet Insurance11
Plan Design
Varying deductible levels and coinsurance Per incident limits Annual maximums Coverage for congenital/hereditary
conditions (?) Continuing Care endorsement
June 2011 Pricing Pet Insurance12
Pricing – Rating Variables
Species (cats, dogs) Age Breed Geographic area
June 2011 Pricing Pet Insurance13
Claim Probability Distribution
Can be used to price varying:
– Deductibles (~$100 ~ $500)– Annual maximums (~$1500 ~ $5000)– Coinsurance levels (70%, 80%, 90%)
June 2011 Pricing Pet Insurance14
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)
June 2011 Pricing Pet Insurance15
Sample CPD
Cost per Pet Freq Avg Annual Claim
Annual
Cost
Accum Freq
Accum Annual
Cost
$0 - $50 .65 $0.50 $.33 1.00 $200
$50 - $100 .05 $74 $3.70 .35 $199.67
$100- $150 .03 $126 $3.78 .30 $195.97
… … … … … …
$5000+ .001 $6250 $62.50 .001 $62.50
June 2011 Pricing Pet Insurance16
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
June 2011 Pricing Pet Insurance17
Actuarial Cost Model Sample
Service Type Annual Utilization Rate
Benefit Amount
Per Pet Cost
Annual Physical .8 $50 $40
Dentistry Cleaning .5 $100 $50
Spay/Neuter .2 $75 $15
Total Net Cost $105
June 2011 Pricing Pet Insurance18
Similarities to human health insurance
Plan design (deductibles lower for pets) Rating variables Levels of coverage Modeling techniques