Part 3 of 3 in our series on how Knose thinks about pet insurance pricing
In our previous posts, we explained how pet insurance pricing works and why premiums keep rising. Now let’s look at how we actually set prices at Knose — and what we try to do to keep them as fair as possible.
What goes into determining a brand new policy price
First, we set a target “loss ratio” for the pool — that’s the proportion of total premiums that are expected to be used to pay all the claims from the pool.
By calibrating to this target, we’re trying to make sure there’s enough money to pay not only the claims, but also cover the costs of administering the insurance, and provide a reasonable return on the capital to shareholders and meet compliance requirements to operate in a highly regulated industry.
But every pet is different, so we can’t charge every pet the same price when they first join Knose. We use what the industry calls “rating factors” to estimate the expected claims and associated costs for each policy.
These include the species (cat or dog), breed, age, gender and where you and your pet live. Location matters because vet costs vary across the country, certain regions have specific risks like toxic ticks, and areas with more advanced veterinary facilities tend to have higher treatment costs. On top of that, most states charge stamp duty on insurance at rates ranging from nil in the ACT to 11 percent in South Australia.
Your policy features are rating factors too. A policy that reimburses 90 percent of the vet bill will cost more than one that reimburses 70 percent — and the difference isn’t necessarily proportional.
There’s a behavioural element: when you know you’re getting back 90 cents in the dollar, you’re more likely to opt for the more comprehensive treatment option if your vet discusses different alternatives with you.
At 70 percent, owners tend to choose more conservatively. The same logic applies to your annual excess and annual limit. A lower annual excess reduces the friction to claim, which changes how and when people use their policy.
All of these factors combine to produce what we call the “rack rate” — the price a brand-new customer would pay for a policy with that their particular pet profile and those policy features chosen by the pet owner.
How we treat renewals
At each renewal, we recalculate the rack rate for your pet — accounting for the fact that your pet is now a year older and reflecting any changes in veterinary cost trends. We then look at your claims history.
If your pet has had a lucky year — no claims or only small ones — your premium will typically increase, but your new premium will likely remain below the rack rate. This is our healthy pet discount, and it’s how we encourage healthy pets to stay in the pool, which can help keep the pool sustainable for everyone.
If your pet has been unlucky, your premium increase may be larger, moving you closer to the rack rate. But here’s an important commitment: we will not charge you more than the rack rate. The most you’ll pay at renewal is what a new customer with an identical pet profile and policy features would pay (without any promotional or introductory discounts or offers).
A note on promotional pricing
When you first took out your policy, you may have enjoyed an introductory offer — perhaps a month or two free. These promotions are sign-up incentives and are separate from how we set the underlying premium. The rack rate, and our commitment that renewals won’t exceed it, refers to the standard, non-promotional premium rates.
When prices shift more than expected
Sometimes we learn new things, and our expectations or estimates turn out to be inaccurate. Our claims data might reveal that a particular breed costs more to insure than we’d estimated, or that a certain region’s vet costs have moved differently to the national trend. When we identify that our pricing needs adjusting — what we call rerating — it can lead to a larger-than-usual change in rack rates for affected pets.
If your policy has been sitting well below the rack rate, thanks to small premium increases at renewal times over several years, a rerating can mean a noticeable jump. We understand this is frustrating. But these adjustments are necessary to keep the insurance pool sustainable for all customers.
Your options if the increase feels too steep
If your renewal premium is higher than you’re comfortable with, you don’t have to choose between paying the full amount or cancelling. Talk to us. You can increase your annual excess, reduce your benefit percentage, or decrease your annual limit. These changes lower your premium while keeping your cover in place — so you still have protection when it matters most.
We’d rather help you find a price point that works than see you walk away from the financial safety net you have for your pet.
If you have questions about your renewal or want to explore your options, the Knose team is here to help.
