Monday, January 18, 2016


Continuing Connection (TZAVTA) Part III: Pet Health Insurance #1 of 2
Your Dog Will Thank You

A Personal True Story (from my book:
Trust Me: I’m Not A Veterinarian- No Dog Before His Time)

My Nicki, a black lab shepherd mix, named for former AWA Wrestling Heavyweight Champion Nick Bockwinkle, was still loving but stoic when it came to her maladies. She would just stretch, while I, on the other hand, would kvetch.
            When available for her and my other canine companions, I secured pet health insurance.
            You would think I would know better –with my experience (having been a fee only personal financial planner and being one of the first if not the first pioneer of no load life insurance (I made 14 cents an hour at it).
            Pet insurers, in the US, have come and gone, as I had experienced with Medipet (issued by Fireman’s Fund, then owned by American Express). So I sought to secure coverage from VPI (now owned by Nationwide) which had been in the pet insurance business the longest time.

            VPI is the largest provider of pet health insurance in the country. The Wall Street Journal and others indicate VPI has 80%+ of the market share at this writing.
            80% of what?  80% of the less than 2% of all companion animals are insured in the United States households..
2% of 80%, if anything, is an indictment.
Two-thirds of American households have companion animals; only one third have children (per the American Pet Manufacturers Association). Companion animals in US Households are growing at 5% a year twice as fast as the child population and there is 200% more dogs than children in these domiciles. (Micro Trends). Yet after 20+ years, pet insurance has penetrated only 2%-3% of the potential market while in Britain approximately 30% have pet insurance and the Brits spend less per capita on companion animals than we do as Americans!
            Draw your own conclusions but here's a hint: in the past Kiplinger’s has questioned the value of pet insurance in general (VPI in particular at one point), and Consumer Reports in 2003 preferred self-insurance (self-funding) to pet insurance in general in its (July, 2007) article: ‘Why Pet Insurance Is Usually A Dog.  Again, in May of 2012, Consumer Reports On Line gave 4 paws down to pet health insurance ranking pet health insurance as #2 of the 7 “Insurance Policies You Don’t Need.”
            That said, now 2016, in a beauty contest of uglies, the American pet health insurance policies are better – but going from 30% (an F) to 60% is a D- in Charlie Brown Peanuts™ vernacular - barely passing giving the ‘gotchas’ in the overwhelming majority of these policies.

            Back then, I believed the VPI policy I had purchased was a $50 deductible, 80/20 cost sharing split (the company 80%, the owner 20%) thereafter with an out-of-pocket maximum per incident of $2500 but $10,000 lifetime coverage. I understood that charges must be reasonable and customary, and furthermore, hereditary illnesses would not be covered. (1)
            Thus, when Nicki required a $1300 anterior cruciate ligament surgery (remember this was 1996 this surgery costs much more today), I expected the following payment:

$1300     cost of surgery (reasonable and customary in the Denver area)           
     -50     deductible
$1250      basis for 80/20 sharing ratio
               -250      my 20% of the cost
            $1000      to be received from the insurance company.

            That's how you would figure your normal (human) health plan benefit. I received approximately $400 (and not $400 initially but only after review after review.)
            I wasn't provided with this information at point of sale, nor upon receipt of paid contract, but it turns out reimbursements were not only restricted by the per-incident limit, the deductible, the 80/20 split, and reasonable and customary charges (the surveys of which are not provided by the insurer and lag a good year or two thus creating an inflation discount on how much is paid) but also subject to “inner limits” (a schedule of maximum payments per procedure).
            Inner limits state that for xyz operation – regardless of reasonable and customary – we will only pay up to X amount.
            And not only did VPI have an inner limit per procedure – but it further limited the inner limits by whether the procedure was primary, secondary or tertiary – meaning the primary cause or incidental to some other procedure, factor, etc.

            In effect, this VPI policy, at that time, wasn’t in my opinion, insurance, but rather in effect a discount policy – like these health cards which give you a discount but are not insurance.
            In addition, if you did not bunch your claims together within a certain period of time, then a whole new deductible started – even if it was the same incident.
            But the coup de grĂ¢ce for this VPI policy – which effectively recaptured a significant part of the $400 claim payment they reluctantly made– was the hidden authority for the VPI to add a surcharge to the insurance premium upon renewal – due to usage!!! Whoa!
            That was 1996.

1) The better policies today do not exclude hereditary illnesses nor typically invoke reasonable & customary but have other ways to wiggle out of payment). I would have preferred (and paid for) a $100 or even $250 deductible, 80/20 split – per year – not per incident – but that was not available then.

By way of full disclosure, I have now the only patents for pet health insurance (in the 705 category) to bundle pet health insurance on homeowners’ policies (there is also, what is called a dependent claim, for a minimum vaccination by law discount – see Moolah’s chapter in the bok to reduce harmful over vaccination). Inspired originally by Nicki’s non VPI treatment by VPI– the benefits by adoption this patent to companion animal guardians, their dogs and cats, as well as insurers (direct writers like State Farm as well as reinsurers like a Swiss Re) are formidable including:

  • Reducing the cost/premiums of pet insurance cost  by 1/3 or more
  • Reducing the veterinary incentive for over vaccination due to the optional discount for minimum vaccination by law given to the companion animal guardian/owner.
  • Presently given estimates that less than 2% in the US have pet health insurance while 30% have pet health insurance in Britain (yet they spend 20% less per capita) at 15% market penetration and 200 million dogs and cats this is a $10-$15 billion dollar untapped potentially very profitable market.
  • The insurance industry - even if it just broken on what is call their ‘loss ratio’ would make multi millions even billions over time via increased retention of policyholders keeping their policies longer. (One premier upper end insurer 15 years ago told me that a 1% increase in retention is $14 million to the bottom line – just think what that would mean for State Farm at 20%+ of the homeowner market.)
  • Increased healthier longevity:  pets that are insured in Britain live on average 2 years longer than their breed. At only a 1 year healthy longevity increase and 15% market share this would save effectively 1,250,000 dogs and cats a year AND my actuaries estimate save another 150,000 per year from economic euthanasia.

So then why after all this time (now 15+ years I have been working on this) – hasn’t this pet health insurance occurred – other than my pleasing personality? One reason that has held up adoption of this concept was the Bilski case which put in jeopardy the whole 705 category/subcategory of business process patents (the pet health insurance bundling process patent was within this category). After all, why engage in licensing or pay royalties if you don’t have to? The case has since been resolved – such that the attorneys tell me there is not a problem with the patent.


Pickin’ From Today’s Pet Health Insurance Offerings #2 Next Entry

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