UK Pet Insurance 2009

Introduction

The UK pet insurance market continued to experience strong growth in premium income and policy numbers in 2008. This report discusses the current consumer attitudes to pet insurance as well as the trends in market distribution. It also provides forecasts for GWP up to 2013, making it essential reading for those with an interest in pet insurance.

Scope

*The latest data and market research, including information on market size and shifts in pet ownership trends

*Insight into the effects of the recession and other market issues including methods to tackle high growth in claims costs

*An understanding of the competitive environment, and of the impact that new entrants and market consolidation is having on the pet insurance market

*Forecasts of the market's GWP growth until 2013, based on primary research and in-house expertise

Highlights

In 2008 the market grew at a slightly reduced rate of 13.1%, which is only marginally below its recent compound average annual growth rate of 14.5%. The increased GWP was a result of both higher premium rates and increased market penetration of the product.

With the economy in recession, the number of unemployed people has increased by 26.1%, as of H1 2009, compared to the 2008 average. This has led to many consumers cutting their expenditures and adopting a personal fiscal stance that is more careful with discretionary spending, such as pet insurance.

Reasons to Purchase

*Understand the competitive dynamics of this competitive niche market.

*Gain insight into the future direction of the sector, including market size and the major issues affecting the market.

*Benchmark your company against your competitors based on current and past performances in the market.


Report Highlights

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Overview 1
Catalyst 1
Summary 1
Executive Summary 2
The pet market grew substantially in 2008 due to higher premium rates and greater policy volume 2
Pet insurance premium income grew by 13.1% in 2008 2
Premium rates continued to increase into 2009 2
High claims inflation continues to be a concern for insurers, keeping profit margins low 2
The pet insurance market's gross loss ratio is less volatile compared to other personal insurance lines 2
The top issue for the market is the ever growing claims bill 3
The economic conditions are challenging to potential pet insurance subscribers 3
Societal trends overall tend to favor pets which require less time commitment 3
The current recessionary economy challenges pet insurance customers 4
Most pet owners form close attachments to their pets, setting this market apart from other lines of insurance 4
The market continues to be highly consolidated 4
Allianz, through Allianz Animal Health and its leading brand Pet plan, is the clear market leader for UK pet insurance 4
Direct Line, More Th>n, Sainsbury's bank and Pet Plan outspent the market in H1 2009, focusing on TV and direct mail advertisement 4
Pet insurance penetration and premium rates are forecast to rise steadily over the forecast period 5
The market is forecast to reach £726.3m in 2013 as both product penetration and premium rates increase 5
Table of Contents 6
Table of figures 7
Table of tables 8
Market Context 9
Introduction 9
The pet market grew substantially in 2008 due to higher premium rates and greater policy volume 9
Pet insurance premium income grew by 13.1% in 2008 9
Pet policy numbers are up though dog and cat numbers are estimated to have declined in 2008 10
Premium rates continued to increase into 2009 12
High claims inflation continues to be a concern for insurers, keeping profit margins low 12
Claims costs were estimated to have grown by 10.6% in 2008 12
The pet insurance market's gross loss ratio is less volatile compared to other personal insurance lines 12
Veterinary costs continue to be the main driver behind higher claims costs 14
The economic conditions are challenging to potential pet insurance subscribers 15
Societal trends overall tend to favor pets which require less time commitment 15
The current recessionary economy challenges pet insurance customers 15
Britons are now more likely to live in smaller groupings, making caring for animals more difficult 17
London has the lowest pet ownership in the UK, which is directly related to its high population density 19
Insurers are using a variety of means to combat high claims inflation and keep the product affordable 20
The top issue for the market is the ever growing claims bill 20
Over treating could be managed better through shared responsibility 20
Closer relationships with veterinarians could also help to manage claims bill more efficiently 21
Lower prices could be used to increase product penetration, widening the risk pool 21
Insurers can use a number of measures to lower the cost of premiums specifically aimed at attracting new pet owners 22
Insurers can also introduce new cheaper policies specifically aimed at attracting new pet owners 23
Customer Focus 24
Introduction 24
Pet insurance consumers are very attached to their animals, with many having more than one pet 24
Most pet owners form close attachments to their pets, setting this market apart from other lines of insurance 24
Dogs and cats account for over half the pets in the UK and the bulk of the pet insurance market 25
Many insurance providers offer discounts when purchasing cover for multiple pets 26
The top four advertisers spent 87. 7% of the market's total advertising spend in the first half of 2009 28
Direct Line, More Th>n, Sainsbury's bank and Pet Plan outspent the market in H1 2009, focusing on TV and direct mail advertisement 28
Direct Line stepped up its advertising in the first half of 2009, while others appear to have held back 29
More cost intensive TV advertising pushed up the marketing outlays for 2008 30
Sainsbury's Bank outspent the market in 2008, showing it had a clear appetite for additional pet business 30
TV became increasingly popular for pet insurance advertising in 2008 and the first half of 2009 32
Online sales form a large portion of many insurers' books, though aggregators remain a minor element of distribution 34
Internet distribution has quickly become an important route to market for many insurers 34
Supermarkets as a distribution channel are expected to grow the most rapidly, though vets are still popular 34
Aggregators are growing in their presence in the pet insurance market, though they account for relatively minor sales volume 35
Small numbers of consumers have begun to use aggregators to assist their pet insurance purchases 35
Gocompare.com announced the launch of one of the first UK pet insurance comparison services 36
Competitive Dynamics 38
Introduction 38
Red Sands, Pethealth and QBE entered the UK pet insurance market, fueling competition 38
Red Sands entered the pet insurance market in mid 2008 38
QBE entered the market by underwriting Pethealth's newly acquired Pet Protect business 39
Pethealth, an established pet insurer in Canada and the US, has expanded into the UK market 39
QBE has begun underwriting UK pet insurance business 40
Pinnacle launched its direct brand in 2008 40
The market remained consolidated with the top five insurers controlling 90.2% market share 41
Allianz, through Allianz Animal Health and its leading brand Pet plan, is the clear market leader for UK pet insurance 41
RBSI, RSA and LV were the only three insurers to grow their market share in 2008 41
RBSI continued to increase its market share, accounting for 27.9% of market GWP in 2008 41
RSA increased its GWP significantly in 2008, supported by new business from a new partnership with Marks & Spencer 41
LV started to underwrite its own Pet insurance book in 2008 41
In 2008 the rest of insurers reduced their market share, although some grew their GWP 41
AXA reduced its market share after ending its underwriting of Marks & Spencer's insurance product 41
Aviva's market share reduced moderately, although its GWP increased in 2008 42
Domestic and General disposed of its Pet Protect division in 2008 42
BNP Paribas' pet insurance book remained broadly the same in 2008 42
In 2008, a decline in Fortis' pet insurance premium income resulted in its market share reducing to 0.9% 42
Pet insurance specialists such as Thornside allow smaller underwriters into the market 45
Due to the complex nature of the product, it is sometimes difficult to underwrite profitably without a large book or long exposure 45
Thornside is the leading pet insurance administrator in the UK 46
Future Decoded 47
Introduction 47
Pet insurance penetration and premium rates are forecast to rise steadily over the forecast period 47
Rising pet insurance product penetration will fuel the growth in GWP 47
Rising claims inflation will compel insurers to increase premium rates 47
Social trends are likely to continue constraining pet population growth 48
Exotic pets insurance business will remain a minor element of the pet insurance market 48
The market is forecast to reach £726.3m in 2013 as both product penetration and premium rates increase 49
Appendix 51
Definitions 51
Methodology 52
Advertising and marketing spend data 52
Competitor data 52
Market size and profitability data 52
Further reading 52
Ask the analyst 52
Datamonitor consulting 52
Disclaimer 52
List of Tables
Table 1: UK Pet Insurance GWP, 2005?08 (£m) 10
Table 2: UK dog and cat population, 1999-2008e (m) 12
Table 3: Gross loss ratios by line of business, 2005-08 (%) 14
Table 4: UK veterinarian industry numbers and pay inflation, 2003-08 15
Table 5: UK economic activity levels, 1998-2007 (000s) 17
Table 6: UK households by size, 1971?2007 18
Table 7: Pet ownership by region, average figure, 2008-09 (% of households) 19
Table 8: Trends in pet-ownership in UK households, 2009 26
Table 9: Top 10 pet insurance advertisers by medium, 2009 H1 29
Table 10: Top 10 UK pet insurance advertisers ranked by 2008 expenditure, 2005-09 H1 (£) 31
Table 11: Top 10 pet insurance advertisers by medium, 2008 32
Table 12: Pet insurance advertising spend by medium, 2004-09 H1 34
Table 13: Top UK pet insurers by premium income, 2005-08 (£000s) 44
Table 14: Top UK pet insurers by market share, 2005-08 (%) 45
Table 15: Key variables affecting pet insurance GWP, scenario one, 2008e-12f 48
Table 16: Forecast UK pet insurance GWP, 2005?13f 50
List of Figures
Figure 1: Pet insurance gross loss ratios have been below the unprofitable lines of private motor but above profitable lines such as travel and home 3
Figure 2: Unlike most other pet insurance advertisers, Direct Line invested in costly TV adverts in the first half of 2009 5
Figure 3: The UK pet insurance market continued to grow in 2008, rising by 13.1% 10
Figure 4: Both cat and dog populations are estimated to have contracted in 2008 11
Figure 5: Pet insurance gross loss ratios have been below the unprofitable lines of private motor but above profitable lines such as travel and home 13
Figure 6: The number of people unemployed has grown dramatically over the past year 16
Figure 7: The prevalence of smaller households has made it more difficult to keep a large animal 18
Figure 8: Population density: by country and government office region, UK, 2007 20
Figure 9: The majority of pet insurance providers are offering discounts to compete 22
Figure 10: Most dogs and cats owners are closely attached to their pets 25
Figure 11: Dogs and cats are still the most popular pets for UK families 26
Figure 12: Many insurance provide discount on purchasing multiple insurance policies 27
Figure 13: Unlike most other pet insurance advertisers, Direct Line invested in costly TV adverts in the first half of 2009 28
Figure 14: Direct Line has been targeting the market with new pet insurance TV advertisements 30
Figure 15: A few top pet insurance advertisers have caused the proportion of marketing devoted to TV to increase dramatically in recent years 33
Figure 16: Gocompare.com was the only price comparison site to fully compare policies while most pet insurance providers only advertise on the comparison site 36
Figure 17: Gocompare.com allows pet owners to tailor their cover and compare policies by price and feature 37
Figure 18: The details of Red Sands' UK pet insurance partners 39
Figure 19: BNP Paribas launched its direct brand "Helpucover" in April 2008 40
Figure 20: The pet insurance market is dominated by few big insurers 43
Figure 21: UK pet insurance GWP, 2005?13f (£m) 49

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List of Tables
Table 1: UK Pet Insurance GWP, 2005?08 (£m) 10
Table 2: UK dog and cat population, 1999-2008e (m) 12
Table 3: Gross loss ratios by line of business, 2005-08 (%) 14
Table 4: UK veterinarian industry numbers and pay inflation, 2003-08 15
Table 5: UK economic activity levels, 1998-2007 (000s) 17
Table 6: UK households by size, 1971?2007 18
Table 7: Pet ownership by region, average figure, 2008-09 (% of households) 19
Table 8: Trends in pet-ownership in UK households, 2009 26
Table 9: Top 10 pet insurance advertisers by medium, 2009 H1 29
Table 10: Top 10 UK pet insurance advertisers ranked by 2008 expenditure, 2005-09 H1 (£) 31
Table 11: Top 10 pet insurance advertisers by medium, 2008 32
Table 12: Pet insurance advertising spend by medium, 2004-09 H1 34
Table 13: Top UK pet insurers by premium income, 2005-08 (£000s) 44
Table 14: Top UK pet insurers by market share, 2005-08 (%) 45
Table 15: Key variables affecting pet insurance GWP, scenario one, 2008e-12f 48
Table 16: Forecast UK pet insurance GWP, 2005?13f 50

List of Figures
Figure 1: Pet insurance gross loss ratios have been below the unprofitable lines of private motor but above profitable lines such as travel and home 3
Figure 2: Unlike most other pet insurance advertisers, Direct Line invested in costly TV adverts in the first half of 2009 5
Figure 3: The UK pet insurance market continued to grow in 2008, rising by 13.1% 10
Figure 4: Both cat and dog populations are estimated to have contracted in 2008 11
Figure 5: Pet insurance gross loss ratios have been below the unprofitable lines of private motor but above profitable lines such as travel and home 13
Figure 6: The number of people unemployed has grown dramatically over the past year 16
Figure 7: The prevalence of smaller households has made it more difficult to keep a large animal 18
Figure 8: Population density: by country and government office region, UK, 2007 20
Figure 9: The majority of pet insurance providers are offering discounts to compete 22
Figure 10: Most dogs and cats owners are closely attached to their pets 25
Figure 11: Dogs and cats are still the most popular pets for UK families 26
Figure 12: Many insurance provide discount on purchasing multiple insurance policies 27
Figure 13: Unlike most other pet insurance advertisers, Direct Line invested in costly TV adverts in the first half of 2009 28
Figure 14: Direct Line has been targeting the market with new pet insurance TV advertisements 30
Figure 15: A few top pet insurance advertisers have caused the proportion of marketing devoted to TV to increase dramatically in recent years 33
Figure 16: Gocompare.com was the only price comparison site to fully compare policies while most pet insurance providers only advertise on the comparison site 36
Figure 17: Gocompare.com allows pet owners to tailor their cover and compare policies by price and feature 37
Figure 18: The details of Red Sands' UK pet insurance partners 39
Figure 19: BNP Paribas launched its direct brand "Helpucover" in April 2008 40
Figure 20: The pet insurance market is dominated by few big insurers 43
Figure 21: UK pet insurance GWP, 2005?13f (£m) 49
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