How are pet insurance premiums calculated?

Most pet insurers do not easily disclose how they calculate premiums and it’s often difficult to find the information, either online or in the terms and conditions. Firms are actually required by the FSA to explain how premiums are set to customers, but in reality they rarely do. So here’s how.

Premiums are calculated according to the risk (likelihood) of you having to make a claim for your pet, the average cost of that claim and your level of cover. The less cover you have, the smaller the premium, so always consider your desired level of cover first and compare price between providers last in order to avoid bad surprises when it comes to claim. Insurers estimate your risk on several factors, the most common being:

1. Average costs of veterinary care throughout the UK
2. Location or area of customer
3. Type of pet
4. Breed of pet
5. Age of pet
6. Personal circumstances

Average costs of veterinary care in the UK

The main benefit of pet insurance is to provide emergency funds in case you need to take your pet to the vet. In that instance, the average cost of vet bills play a big part in the way premiums are set: the more expensive the care, the higher the premiums. Companies won’t pay claims at a loss, so they have to match vet fees increase with an increase in premium. And since the costs of vet healthcare keep on rising year after year, premiums follow the same trend. New treatment techniques, machines and medicines are available, meaning your pet can benefit from better care, but this comes at a high price.

Location or area of customer

If you live in London, vet fees are likely to be more expensive than in Bradford, simply because the cost of living remains generally higher. If you live in the city centre, your pet is more prone to road accidents (some insurer will ask you if your cat stays inside your accommodation at all time), so your premium will reflect that risk.

Type of pet

Your premium will differ whether you insure a cat, a dog or a rabbit. It’s generally cheaper to treat a cat than a dog, and rabbits, for instance, are very sensitive in their teeth, so the risk must reflect costs for treating a tooth-related condition.

Breed of pet

Some breeds are more likely to develop a certain condition than others (especially for dogs). For instance, a Boxer has a natural tendency towards hip dysplasia or cardiomyopathy, whereas a Labrador Retriever is more incline to suffer from eye disorders. Also, the bigger the dog, the greater the care and medicine, so the higher the claim, and the higher the premium. Some insurers categorise dog breeds into different risk categories in order to charge each customer a premium as fair as possible.

Age of pet

As your pet gets older, it becomes more likely to develop an illness, so it is at greater risk. The older your pet, the greater the premium. Some insurers consider that, past a certain age, insuring a pet isn’t profitable to them, so they set an age limit (upper age limit) above which you can’t insure your pet because the risk is too high and not worth taking.

Personal circumstances

Quite vague, isn’t it? “Personal circumstances” are generally used to set your premium at renewal: if you have claimed in the past, your premium will go up according to what you’ve been claiming for: was it an expensive claim? was it for an ongoing condition that will require years-long treatment? If so, your premium will increase by a greater deal than if you claimed for a tiny injury. On the other hand, if you haven’t claimed, well… your premium might still go up due to other factors such as vet fees inflation and your pet getting older.

As a general rule, speak to your insurer before you take out cover and check how your premium is calculated and how it will increase over the years. Pet insurance premium calculation is much more complex than for car insurance, and therefore makes it an even more difficult product to understand. Articles on this blog try to demystify the world of pet insurance: use them!!

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