Analyst warns rising costs likely to be ‘unsustainable’

Unsustainable increases in veterinary care costs are likely to keep pushing up pet insurance prices following a 13% hike in premiums last year, industry consultants have warned.

The Pearson Ham Group found the cost of policies for older pets jumped by more than a quarter during 2023, with cover for dogs rising twice as fast as for cats.

But it also hinted the trend could be impacted by the competition regulators’ review of veterinary services, even though the findings are unlikely to be known for several more weeks yet.

The biggest increases relate to lifetime policies, with the price of maximum benefit and time limited cover only rising by 3% and 2% respectively.

Group director Stephen Kennedy said the average 12.9% increase in lifetime cover costs was “positive” when compared to the 17.3% increase in the price of veterinary and other pet services recorded by the Office for National Statistics (ONS).

Further action

But, during a webinar on the company’s YouTube channel, he acknowledged the current gap between the two trends was likely to necessitate further action.

He said: “With all else remaining equal, prices will have to go up to address the increasing costs we’re seeing.”

The group’s inaugural quarterly price index for pet insurance showed some of the biggest increases in cover costs were for pets aged six years old or over (26%) and for policies offering annual veterinary fee limits of £5,000 or more (19%), while prices for pets under a year old remained broadly flat.

Meanwhile, dog insurance policies also rose by 14%, compared to 7% for cats, although the two trends only began to diverge in the second half of the year.

Looking to the year ahead, Mr Kennedy suggested insurers may start to look more closely at owner characteristics, where they live and where pets are kept when setting cover prices, while more frequent changes in price may also occur.

Review

The analysis was published as the wait continues for initial findings to be published from the review of companion animal veterinary services launched by the Competition and Markets Authority (CMA) last year.

Although the authority initially said it would provide an update on the process in “early 2024”, no further developments have been reported since professional and public questionnaires closed in October.

But while officials insist their position has not changed, a letter from the CMA, which has been seen by Vet Times, said it would publish an update “in the next one to two months”.

The letter was dated 16 February, suggesting that it is likely to be at least the middle of March and potentially as late as mid-April before any details are likely to be forthcoming.

Closely monitoring

Mr Kennedy said investors would be closely monitoring the review’s progress because of the shift towards corporate ownership in the veterinary sector over the past decade, while the ONS had acknowledged historic undercharging by practices.

But he also cautioned that, while many pet owners felt they were being overcharged for veterinary services, the current trend of practices having to pay costs that are rising much faster than wider inflation was “not a sustainable position”.

He said: “It is a complicated and difficult position, with many elements for the CMA to unravel and address.

“That has meant a lengthy process which is difficult for many to endure but exactly how the CMA intends to address the issues is as yet unclear. But addressing the perceived lack of clarity of consumers on how practices price and who they are owned by will be central to the CMA’s findings.”