By Dave Nicol
For years there has been rumblings in the vet press about the often-uneasy relationship between vets and insurers. But, rather like the disruptive Icelandic volcano of late, the matter seems ready to erupt onto the mainstream of veterinary economics with dramatic implications for a lot of practices in the UK.
If the Marsh Report turned out to be a small issue that got a lot of press, this seems to be the opposite, a gargantuan issue that is getting little. Let’s be under no illusion as to the scale of the problem. If the insurance industry collapses (and it is sagging under a heavy burden), then not a practice in the UK will avoid the effects. And much of referral practice will dry up almost overnight.
What then are some of the problems and is there a solution that everyone can be happy with?
SWOT-ting the Problem
First a brief look at of the issues affecting pet insurance (these are my takes on things so feel free to add, criticise and develop the theme from your own perspective.)
Key Strength of Insurance
Pets and vets benefit when an animal in insured. This in not in dispute and a great many practice owners drive cars funded from the work generated by insured clients.
Key Weaknesses of Insurance
1. Animals currently on the insurance books are ageing and not being replaced with enough younger animals to maintain required margins. This is leading to increases in premiums, excesses and increases in claim ‘push back’ and payment time.
2. Old promises have been broken (remember “we pay in seven days”) and the relationship between insurers, vets and clients is increasingly strained.
Opportunities for Development
1. The market is not nearly penetrated to saturation point. So even in a shrinking market place it will be possible to find more new customers out there.
2. Uptake of other “well pet” products and services like vaccination, neutering, micro-chipping, and parasite control/diets is poor. Products capturing increased sales of these may have room for more manoeuver on premiums based on the fact that if a client buys a greater slice of the pie from their vet/insurer, they get a better deal.
3. There is much, much more business to be captured each day by vets. Not by increasing fees, but by improved uptake of existing or new products and services. Smart practices will be focusing on improving their sales technique. In fact I’d go further and say that if the last decade was about advancing clinical techniques, I believe the next will be about advancing sales skills.
Threats
1. Vet inflation – which came first pet insurance or vet inflation? One, I suspect, is strongly driving the other. Whatever, today’s pet owner now expects their pet to receive the same level of medical care they get themselves. The rate of medical inflation is at times terrifying and threatens not just pet insurance but healthcare systems globally. Can we sustainably afford the levels of healthcare and pet care we currently enjoy? Or are we living beyond our means?
2. Erosion of trust leads to lower market penetration as vets stop selling the products, in fact if things continue they might just do the opposite and actively campaign against it in the consult room.
3. Shrinking/aging pet population – we are all operating in a shrinking market where inevitably there will be a shift towards older pets not being replaced by younger ones. This places massive pressure on all insurance companies who rely on an increasing number of young animals to finance the payouts on older ones.
4. Economic meltdown looms. We might be out of recession but we are not out of trouble. The government has simply moved the problem from the banks (private sector) to the public sector. But with government debt levels at an all time high and tax receipts falling you can be sure that more financial pain is coming – most certainly in the form of higher taxes but quite possibly due to hyperinflation. Either way people will have less money to spend on perceived luxuries (satellite TV, holidays, pets and non-core insurance.)
Where Hence from Here?
The status quo of ever-increasing fees and premiums coupled with decreasing and delayed payouts is a very destructive cycle that cannot go on forever.
If we are agreed that insurance has, by and large, been a good thing (and I support this view) then change has to come soon.
Selling more insurance to younger pets is about the only viable option for stabilising the base for all insurance companies. Problem is it won’t be easy to do. Market penetration seems to have crept along and is going nowhere fast. So increasing sales will mean doing something very different (in fact it almost means a paradigm shift).
Creating a policy and a route to market that reaches customers with a product they perceive to be valuable will be complicated and I think highly politicised. We know that vets don’t sell well but I believe real partnership still seems to be the best way forward.
Trust needs to be re-established. For me, one such sensible way forward is for an insurer to sit with an individual practice and help them work out a profitable fee structure and agree caps on certain operations (just as happens with medical insurance). It also means training the practices to sell the product effectively. In return insurers meet promises and payouts that are also negotiated and agreed.
For practices that might mean they can’t charge £3000 for a TPLO, so to make the required margin they are going to have to do more work, but how many practices are actually operating to capacity right now? How many practices are actually capturing all of the available business to them? A rough guess would be none. Not a single one. Improved sales techniques and better management of practice resources will go a long way to helping build sustainable future profits.
These solutions are not perfect or complete. Vets will always be vets and hate selling. Vet practices will always be small businesses with rough-round-the-edge policies and procedures. So politics and compliance issues will hinder efforts. But unless vets have a collective vision of a sustainable future without pet insurance we have to start somewhere.
There are some tough decisions on the road ahead for practices and insurers. It starts with an open and frank dialogue. I hope this piece adds something for others to think about. Please comment or email me your opinions. Better still start talking to your insurer and quite possibly the BVA.
Next Time on Dave’s Blog
Six Tips to Drive Your Practice into the Ground
