Consumer Reports on Pet Insurance: not up to CR's usual standards

I'm generally a fan of Consumer Reports. I love the idea of an independent organization testing out every product and service known to mankind and diligently reporting back on its assessment of the facts so that I don't have to wonder whether I picked the right airline for summer travel or the appropriate deck stain for my dilapidated deck. Life is easy with Consumer Reports in hand.

So, when I heard that the esteemed magazine had an article on pet insurance in their July 2007 edition, I ran to their website to see what facts and truths they had come up with about pet insurance.

I imagined a secret army of intrepid testers all buying policies for their beloved cats and dogs from every company (who was our secret shopper, I wondered?) and unbeknownst to us, we would have received mystery calls to our Customer Care Embracers measuring our hours, effectiveness, and knowledge. Perhaps they might have caused some sort of hiccup with their billing to see what our response time would be, and maybe they sent in the same claim to each company to test our service times, what was paid out, and so on. After all, that's what Consumer Reports is famous for - isn't it? Thoroughness, accuracy, unbiased reporting?

So I was sorely disappointed to find the article is a very cursory look at pet insurance, cobbling together a few incorrect facts and assumptions by someone who had read a few articles on the topic, looked at one pet insurer's product, and had already decided pet insurance "is usually a dog". It was as if Consumer Reports had assigned a vegan to test chicken pots pies. It's just not going to be the same as if the NY Times food critic did the review, is it?

So, let me add my comments on the article. Maybe we'll get them to come back for a real look at pet insurance? [My comments are in italicized square parenthesis]

Why pet insurance is usually a dog [groan]

If the recent pet-food scare is tempting you to buy insurance for Fifi or Fido, hold on. Even though many policies cover tainted food, most exclude pre-existing conditions. [Is this unreasonable? You wouldn't expect to be able to buy auto insurance for the car after you've had an accident, would you?] And hereditary or congenital problems. [now I agree, this has been a problem with pet insurance in the past. But Embrace Pet Insurance covers hereditary and congenital problems as long as you don't know your pet has them when you first buy the insurance, and there are two other companies that offer this coverage too] And ailments that strike during the first month of coverage. [this is true for illnesses for PetCare, the pet insurance brand mentioned in the article below. Most other insurers have shorter waiting periods. Our waiting periods are 2 days for accidents and 14 days for illnesses] And oh, yes, some insurers restrict coverage for older pets. [I'm not sure what exactly this means really but there are some insurers that automatically reduce coverage at older ages. We don't.]

But such limits didn’t stop the pet-insurance industry from selling an estimated $230 million in policies in 2006, a figure projected to grow by 24 percent this year, according to Packaged Facts, a market-research company. [this figure is based on a projection made in mid-2005, which turned out to be overstated because of the mis-reporting of the largest pet insurer. The true number is closer to $170 million. And while that might seem like a big number, consider that prepaid legal premiums are approximately $1.4 billion a year, give or take a few hundred million, and that travel insurance is over $1 billion a year (see sources below). But I digress. I think the implication of this statement is that somehow, us evil pet insurers have forced this insurance on the unsuspecting public - because we all can you know. Sigh...]

There are at least a dozen brands of pet insurance in the U.S., selling several levels of coverage [yes, there are a dozen brands of pet insurance but they sell hundreds of levels of coverage - we have over 108 variations ourselves for any particular cat or dog living in a specific area - and over 12,000 price points. But who is counting?]. Accident insurance, usually with a provision for tainted food, is typically part of a policy [this coverage limitation is specific to PetCare but PetCare is the only company that excludes tainted food in its policy in the US as far as I'm aware]. Cover­age for checkups, shots, and certain breeds costs extra [that's generally true although there is one company where routine care is included automatically in their insurance. Keeping it separate is a good idea because some people would rather not have an insurance company cover something that they themselves can budget for - it's more expensive to have it wrapped in the insurance].

Most insurer Web sites give you price quotes instantly, but whether the price is worth paying is harder to gauge. If you buy PetCare’s QuickCare Gold policy for, say, a bearded collie puppy, you’ll pay $49 a month. If the pup needs $3,000 toward treating a spinal problem the next year, you’ll be glad you bought insurance: You’ll owe a $100 deductible, after which the company pays 100 percent, up to $3,000. Not a bad deal, because you will have paid about $600 in premiums. But if the problem occurs after the dog turns 8, the plan pays only 80 percent, and you’ll be out more than $4,000 in premiums paid during those eight years. [this is the key statement of this article but this is not why you buy pet insurance! Pet insurance moves the financial impact of a large vet bill from financially limited pet parents to the financially stable insurer in exchange for a regular premium - aren't you glad your pet doesn't get sick seriously enough to have a $3,000 bill until she's 8 years old? Of course! Are you hoping to have a big claim on your insurance policy sooner than later? Of course not! But your insurance is there if the unexpected happens.]

CR’s take. Checkup costs alone don’t justify insurance. Instead, factor them into your budget. [I think that's a fair statement. Routine care costs are predictable and known each year so you are better off taking that charge yourself than paying an insurer more to do so] Annual surgical vet visits cost, on average, $453 per dog and $363 per cat, says the American Pet Products Manufacturers Association. [the APPMA's numbers include a large number of spay/neuter surgeries, which skew the numbers lower than an unexpected surgery would cost.] If your pet is older and more likely to need extra treatment, [..and hasn't already had the usual aging illnesses that would now be excluded and perhaps a couple of other unexpected events that are also excluded... My point is that you shouldn't wait until after your first accident or illness to realize you should have had pet insurance] and you can find an accident-and-illness policy that costs less than those amounts, consider it. [If life were all about averages, we'd know what the average lotto numbers are (whoopee, we're rich!), the average number of kids we'd all have (I have 1.86 children, don't you?), and the average age we'd live to (I'm pegged for 78.0 - thank goodness it keeps going up every year). But we know real life is not about averages, it's about the outlying events that happen to us and their consequences. Could you afford a large vet bill if you should face one?] If not, put the amount you’d pay in premiums into an interest-bearing fund. [Because we all know that Fifi and Fido will wait until you've saved up enough to pay for their care. And they'll be sure not to do it again until you've saved up some more - not!]

'Nuff said.

Numbers Sources

Pre-Paid Legal: approximately 8 million people/businesses have prepaid legal insurance in the USA according to Marcia Messett, the national sales director for Hyatt Legal Plans, the largest provider in the United States for corporate prepaid legal service (quoted in this Feb 12 2007 article). Assume an average premium of $15 a month ($25 seems to be about the lowest I could find and it can go much higher but we'll assume an even lower premium just to be sure), that adds up to $1.44 billion a year. The give or take a few hundred million assumes that some of those numbers are not 100% correct but you get the idea.

Travel insurance: over $1 billion spent on travel insurance in 2004 according to the US Travel Insurance Association

Comments

[Carol Ann]

They didn't like pet insurance 4 years ago (almost to the day) when they ran a multi-page article on it back then. Why would they now? It's not like a car that has been significantly improved after a bad model or year. And CU starts their research many months in advance before publishing an article. So any new players on the scene are not noted or given much time to prove themselves. I still live and die by Consumers Reports for everything else in my life and they have never steered me wrong on those matters. I just get over the fact that they have never liked pet insurance and never will and then move on with my life.

[Heltzer]

Laura- these are good points. You should write a letter to the editor.
______________________________________________

Thanks for the suggestion. I did sent the following email so we'll see what they think, if anything. I doubt pet insurance is on their radar. I think the article was a reaction to the pet food recall to sound topical given the lack of research put into it. We shall see.

Laura

Hello there. I see CR continues to dislike pet insurance although it doesn't appear that very much research was done for the lastest article (I humbly submit my analysis of it here http://embracepetinsurance.typepad.com/blog/2007/06/consumer_report.html).

Would it be possible for CR to do the usual high-quality review of pet insurance we've come to expect from Consumer Reports? I agree that pet insurance has not had the best reputation in the past because a large enough number of policyholders had a poor experience with it, which kept others from buying it (companies were not very clear about what was and wasn't covered, disappointing people at claim time).

Things are changing with new players coming into the market with a new style of customizable product and a new attitude of open and honest disclosure (hard to believe, I know - check it out to see if it's true). Plus pet parents (the subsegment of pet owners who buy pet insurance) are buying it despite its past poor showing, with it growing over 25% per year. There is a need out there amongst the 60+ million households with pets in the US.

Pet insurance is all about responsible financial planning for those people who would put themselves under financial strain in the case of a high vet bill. Don't you think it valuable to review the products to help those who buy it?

Sincerely,

Laura Bennett