Part 2 of 3 in our series on how Knose thinks about pet insurance pricing
Let’s start with a very human moment. You open your renewal notice, see the new pet insurance premium, and think: “But my pet didn’t even go to the vet this year. I wasted that money.”
We’ve all done this. It happens with travel insurance too. You buy it to protect yourself against something going badly wrong. If your holiday goes perfectly — which you hoped it would — you look back and feel like the pet insurance premium was money down the drain.
The careful thinking you did before the trip, weighing up the financial risk, gets overwritten by hindsight.
With pet insurance, this moment of reflection can hit every year at renewal. And because pets can live for 10 to 20 years, you’ll face it many times. The temptation is to think: nothing went wrong last year, nothing will go wrong next year, so why keep paying?
That reasoning may feel intuitive. But it can undo the very planning that led you to insure your pet in the first place.
So why does the premium actually keep increasing?
Two forces are at work.
The first is ageing. Pets age much faster than we do. While the “one human year equals seven dog years” rule is an oversimplification, there’s some real truth to it — a six-year-old dog is roughly the equivalent of a 42-year-old person. As pets age, their medical needs increase, just as ours do. The insurance premium has to reflect this rising expected cost.
The second is veterinary costs inflation. Even before COVID made everyone aware of inflation, vet costs in Australia were climbing at 5 to 9 percent per year — well above the 2 to 3 percent CPI range the RBA targets. This isn’t because vets are overcharging.
It’s mainly because veterinary medicine keeps getting better. New diagnostics, new treatments, new surgical techniques — all wonderful for your pet, but each advancement adds cost. The same procedure that was cutting-edge five years ago is now standard care, and the new cutting-edge option typically costs more.
These two factors — your pet getting older and vet care getting more expensive — stack on top of each other at renewal times.
Here’s where it gets tricky for insurers
About 80 percent of pets have a lucky year without any injury or illness on average. When those owners see a 15 to 20 percent increase in their pet insurance premiums at renewal times, driven by ageing and vet costs inflation, some decide to leave their pet insurance provider. The ones who stay tend to be those whose pets have been unlucky — they’ve seen the value of insurance first-hand and are happy to renew.
Each time this happens, the proportion of healthy pets in the pool shrinks. The average claim cost for the remaining pool goes up. The insurer has to raise premiums further. More healthy pets leave. The cycle accelerates.
Left unchecked, this spiral can lead to an unsustainable pool of mostly unwell pets with sky-high premiums. It’s one of the fundamental challenges in insurance, and it’s something we think about constantly at Knose.
In our next post, we’ll explain what we do about it — how we try to price fairly, reward healthy pets for staying, and what options you have if your premium increases more than expected.
