The vast, untapped market of pet insurance

BamBam, Tucker and Briar are just a few of the furry companions who come to work with their owners at Pets Plus Us each day, keeping the 30 staffers happy and better connected with customers calling to insure their pets.

Located in Oakville, Ont., Pets Plus Us is the latest player in the Canadian pet insurance business, seeking a greater share of the accident and illness policies increasingly being written for cats and dogs. The business is a subsidiary of insurer RSA Canada.

The growth of the niche pet insurance industry comes amid changes in the animal health care business as veterinary medicine becomes more expensive. There are 14 million cats and dogs in Canada, but less than 3 per cent of owners buy insurance for them, trailing more developed pet insurance markets, such as Britain, where more than one-quarter of pet owners buy policies.

That's poised to change, according to Randy Valpy, head of Pets Plus Us – who is referred to as the "top dog."

"We know there's a lot of other companies considering whether now is the time to get into this," Mr. Valpy says from his open concept headquarters as the office's lone cat, Bruin, walks alongside him. He thinks the industry could reach the 5- to 10-per-cent penetration range before 2020.

The North American pet insurance industry is estimated to be a $595-million market, according to a measurement of gross written premiums by the North American Pet Insurance Association (NAPIA). The amount of new businesses, and the number of insured pets has increased in the past five years.

Dogs and cats are living longer than ever as nutrition and animal medicine improves. "It wasn't that many years ago, if your pet came down with cancer, the scenario was you put it to sleep, whereas now you go through chemotherapy," Mr. Valpy said.

The rising cost of veterinary medicine has put more canine and feline owners in a position where they must put a price on their pet's life. Insurance policies spread out that risk over time, and reduce the sticker shock of invoices from veterinary clinics.

RSA's Pets Plus Us became Canada's fifth pet insurance provider when it launched in April, 2013. The five companies support 14 brands of pet insurance in Canada, underwriting policies offered by major retailers, such as the Hudson's Bay, President's Choice Financial and Wal-Mart. More of these so-called white-label solutions are likely to come to market in the future, insurers say.

Market growth for insurance providers "will come through increased education to consumers by tapping into the channels of our key influencers – veterinarians, breeders and shelters," said Rod Cunniam, interim president of the industry's oldest and largest cat and dog insurer Petsecure, a subsidiary of Western Financial Group. The company has covered more than 900,000 pets and paid over $140-million in claims in the past 25 years.

Insurers must first convince Canadian pet owners that they need the policies, especially since insurance here is more costly than other parts of the world because of market immaturity and claims patterns. In Britain, customers tend to make claims for major injury or illness expenses, rather than routine visits. In North America, customers are more likely to make frequent claims for small expenses, too, so loss ratios tend to be higher, Mr. Valpy said. Marketing costs are also higher in North America.

One advantage for the industry is that pet insurance is an easy product to sell online – where 40 per cent of the industry's sales happen. "All we need to know is species, breed and postal code – those are the three factors that drive pricing," Mr. Valpy said.

A pet living in downtown Toronto is going to be more costly to insure than one in a small town in Saskatchewan because the vet's overhead expenses are higher in the city. The average annual premium per pet insured for illness and accident in North America was $407.37 in 2013, NAPIA's measurement shows. That's far less than the cost of canine cancer, which can be thousands of dollars to treat.