Learn the Truth About Costs of Pet Insurance Claims

Insurance companies, like all businesses, require a profit if they are going to be sustainable. No one would want to pay insurance premiums for ten years only to find out that the company went out of business.

What makes the insurance industry unique, among other things, is the fact that they do not know their cost of goods (costs of claims) until after they have sold their product.

It is a fact that insurance companies routinely lose money on certain individual insured. For pet insurance, companies lose money on the "unlucky pets". This is not only reasonable but it is absolutely necessary if the pet insurance plan is to offer value.

In some cases, insurance companies may even lose money for a period of time on the entire plan or group, though this will always be short term. For example, when hurricane Katrina hit New Orleans, the insurance plans had an increased cost of claims and therefore, the companies lost money that year. In the years that followed, the cost of home insurance increased and the insurance companies made their money back.

In the long run, insurance companies always make a profit. It is the only way to serve their customers.

How do pet insurance companies reduce the "cost of claims"?

1. Not paying small claims

2. Reducing the average size of a claim

3. Not paying large pet insurance claims

What pet insurance companies can do to decrease the cost of claims :

In the above example, approximately 85% of all claims are paid.

To decrease the number of small claims (insurance companies call them "nuisance claims") they increase the deductible. In this example, the % of claims paid would decrease from 85% to 78%.

To decrease the exposure to large claims, the insurance company limits or caps the coverage. These limits generally apply per year or per claim. In this example, the % of claims paid drops to 70%.

To decrease the severity (size of the claims paid) insurance companies increase the percentage the customer must pay by altering the coinsurance.

What values should you look for in a pet insurance company?

What is considered Routine Coverage? Do you cover it?

North American Providers of Pet Insurance