Pet insurance:marketactivity,trendsandkeyissuesCasualty Actuarial SocietyAnnual MeetingNovember8,2021EYPresented by Morgan Butz and Brian ChiarellaBullding a betterworking worid DisclaimersEY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young GlobalLimited, each of which is a separate legal entityThe views expressed by the presenters are their own and not necessarily those of Ernst Young LLP or othermembers ofthe global EY organization.These slides are for educational purposes only and are not intended to be relied upon as accounting, tax, legal orother professional advice. Please refer to your advisors for specific advice.EY TableofcontentsSection A: Pet insurance and regulationSection C: Pricing, underwriting, and claimsWhat is pet insurance?Policy featuresWhat else can pet insurance cover?UnderwritingWhat isn't pet insurance?Poll question 3Poll question 1PricingA regulatory analogyAlternative approaches to age ratingA multi-disciplinary approach to pet insuranceLoss trendsRegulatory differences by stateClaims and reservingData sourcesSectionD:Human health considerationsSection B: Market dynamics and growthPlan designMarket size and growthPricing and underwritingAverage premiumsNetworks and cost controlPoll question 2Financial reportingMarket penetrationPoll question 4Market sharesDistribution channelsEY Section A:Pet insurance andregulationEY Whatis petinsurance?MedicalAccidentsIlnessesWellnessSmallDogsCatsBirdsReptilesmammalsPag: 5Pat Ihturwnrr- market wcta.tty, trendt and kry lktuptEY What else can pet insurance cover?Diagnostic exam feesRecovery and complementary care:AcupuncturePrescription medications (Rx)ChiropracticPrescription foods and supplementsBehavioral modificationHydrotherapyCongenital conditions (e.g., heart disease, cataracts)Physical therapyHereditary conditions (e.g., diabetes, thyroid disease)HomeopathyDental illnesses (e.g., extractions, gingivitis)NaturopathyBoarding fees in emergency situationsLoss-and-found pet search expensesWorking-pet coverage (police dogs, therapy pets)EY Whatisn't pet insurance?LifeinsuranceforHomeownersDog ownerLivestockanimalscoverage Eliabilityinsurance(personal(dangerous dogliability)insurance)EY Poll question 1How is pet insurance regulated?a)It is classified as special liabilityb)It is classified as other liability(It is classified as health insuranced)It is classified as inland marinePac* 1EY Pollquestion1answerPet insurance is regulated as a property and casualty line of business: inland marine Pet insurance is similar in nature and coverage to human health insurance; however, pets are legally consideredpersonal property and therefore pet insurance is regulated as a property and casualty line of business.The National Association of Insurance Commissioners (NAiC) published A Regulator's Guide to Pet Insurance in2o19 detailing the current state of pet insurance coverages, forms, marketing strategies, licensing and otherconsiderations.appropriate regulatory standards for the pet insurance industry.EY AregulatoryanalogyExample:waterExample:healthMunicipalwaterisWaterHumanhealthisHealthregulated as:regulatedas:ButbottledwaterisFoodButanimal healthisPropertyregulated as:regulatedas:This is important to recognize because property and casualty pet insurers want be more knowledgeable of human health considerations(see Section D), and health pet insurers want to be more competitive in a property and casualty framework.Pa: 10Pat ineurwnrw- market sctatty, trendt and ksy lttuecEY RegulatorydifferencesbystateFlorida: While almost all states regulate pet insurance as inland marine, Florida regulates pet insurance as livestockandanimalsCalifornia:Currently theonlystatewith a law specificallygoverning pet insurance:The law requires pet insurers to disclose baseline information regarding reimbursement benefits, pre-existing condition limitations, and a clear explanation of limitations of coverage, including coinsurance,waiting periods, deductibles and annual or lifetime policy limits.The California laws also provide consumers with a 3O-day"free look"period in which a pet insurancepolicy can be returned for a full refund. An earlier version of this bill attempted to prevent exclusions forpre-existing conditions but was vetoed by the governor.No states address producer or adjuster licensing. Most states require a full property and casualty license to sell,solicit or negotiate pet insurance, while a few states, including Idaho, New Jersey, Rhode Island and Virginia,allowfor use of a limited lines license.EY DatasourcesPet insurancedoes nothave its ownfinancial reportinglineintheannual statement.Industry loss data is not easily obtainable because pet insurance is commingled with otherinlandmarine property coverages, such as contractor's equipment, in the annual statement.NorthAmerican Pet HealthInsuranceAssociation (NAPHiA)Centralized industry resourcefor reporting and publishing of pet insurance informationAnnual state