How to Start an Insurance Company for Pets

A sick pet's veterinary bill can rival that of a human.

According to "Pet Industry Trends for 2009" on the website Small Biz Trends, the emerging pet insurance industry sold $271 million in premiums in 2008, an increase of 23 percent over the previous year. As the pet insurance concept becomes mainstream, there is room for other organizations to reap the benefits of the nascent industry. The process of starting a pet insurance company is similar to other types of insurance.

Things You'll Need

• Contacts for insurance superintendent for each state in which you intend to sell insurance

Instructions

1. Contact the insurance regulators for the states in which you intend to sell pet insurance and advise them of your plans. Pet insurance is relatively new, and many states do not have specific regulations regarding its sale. The regulators will advise you of the necessary steps required to legally sell insurance within their jurisdictions.

2. Seek investors to provide capacity funding for your new company. Capacity represents a fund used as a surety to prove the organization has enough money on hand to pay any potential claims. State insurance regulators often dictate how much capacity must be available, in short-term investments, as a percentage of the coverage you are hoping to sell. For example, if you plan on selling $10 million in pet insurance limits, you may be required to keep $1 million available. An increase in the amount you intend to sell will similarly increase the amount of capacity you require.

3. Develop your underwriting rules. You must define what type of animals you intend to insure, in a clear and concise manner. You need to determine what types of animals, what breeds and the ages of pets that you will insure. Similarly, you need to determine what animals you will not insure. For example, many pet insurance providers refuse to write bulldogs, as they have common hereditary problems with their eyes and respiratory systems.

4. Calculate a rating methodology that aligns with your underwriting criteria. Compared with other insurance products, pet insurance rating is less than precise, as not enough loss experience has occurred for accurate analysis. If you intend to use an actuary to set rates, he will consider what information is known to date and examine statistics from veterinary regulators, horse and livestock insurance information and other research that helps support their analysis. Many companies base their initial premiums on the amount a consumer is willing to pay, increasing and decreasing the premiums as more information is gathered.

5. Write and approve your policy contract. The contract outlines what the insurance company will and will not cover. It is a legal contract and must be carefully vetted to ensure the policy reflects your intent. It is likely that your capacity provider will have input regarding your policy contract, underwriting rules and rating methodology, to ensure they are in agreement with the complete product offering.

6. Sell your pet insurance. Base the marketing plan on your target market, policy terms and other factors. You may discover that pet owners are more likely to purchase their coverage the day they add their new addition to the family, or getting insurance might be based on veterinarians' recommendations. A good marketing plan will identify the best opportunity for a sale and how to place your offering into that situation.

7. Establish a claims process. If there were no claims there would be no insurance. Establish a claims department and systems that facilitate how your company responds to a claim for an insured pet. This is the moment of truth for any insurance company, and your customer paid a premium based on your promise to pay.

Tips & Warnings

• Consider using a Lloyds of London syndicate as a capacity partner, as the company has extensive experience in the animal insurance marketplace.

• Take advantage of the cost savings that can be achieved by selling, rating and issuing policies using the Internet.

• Don't assume anything until after you speak with the insurance superintendent in the regions you are planning to serve.

References

• Small Biz Trends: Pet Industry Trends 2009
• Insurance Journal: How to Own an Insurance Company