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The Investigation launched by the Competition and Markets Authority (CMA) into the Vet Sector in September 2023 stated the intention to look into “consumer experiences and business practices in the provision of veterinary services for household pets in the UK. It will explore how well the market, worth over £2 billion in the UK, is working for pet owners including whether they are receiving the information they need at the right time to get appropriate treatment for their pets.”
However, having considered the current scope of this investigation and the problems which Procurato knows Pet Insurers are facing, we don’t believe that waiting for the outcome of this investigation will resolve these issues. We are also concerned that, whilst the investigation takes place and we await the decision, millions of pounds of minimally managed indemnity spend will flow out of insurers.
Typically, CMA investigations look at topics including Price Fixing, Market Dominance, Anti-Competitive Agreements, Information Sharing, Consumer Choice, and Quality of Service. In this case, thus far, the CMA has called out [1]:
How prescriptions and medication for pets are arranged and sold
Choosing a vet surgery and whether people are aware that their vet may be part of a larger chain which might also own other surgeries in the are
Using out-of-hours and emergency vet services where options might be limited.
The investigation seems to be driven by concern over the consolidation of the independent Vet sector, particularly by Private Equity, and the impact this is having on the consumer’s choice and the prices of care and medicines. Whilst some of these points are things vexing pet insurers, it is difficult to see a straight-line link between the potential conclusions by the CMA and insurers’ issues.
As a precursor to this action, the wholesale shift in the competitive dynamics of the sector is what drove the individual investigations and findings regarding CVS (acquisition of Quality Pet Care Ltd.) and IVC (8 separate acquisitions). Within its decision summary on CVS [2] was the CMA’s observation that “independent veterinary practices accounted for 89% of the UK veterinary industry in 2013, this had fallen to approximately 45% by 2021, primarily as the result of the acquisition of large numbers of independent practices (or smaller groups of vets’ practices) by corporate groups”.
So, in a nutshell, the CMA investigation is focused on whether the consolidation of a large number of independent vets by private equity, into Super-Vet Groups, is driving down choice and driving up costs for consumers.
Insurance Sector Issues
The problems insurers are facing in the pet sector are multi-faceted, but sit in three basic buckets:
1. Product, Proposition and Pricing issues
2. Claims inflation and supply chain fragmentation
3. Lack of granular Claims data and insight.
The holistic issue for Pet Insurers is they lack the granular data and consequential insight that they rely on to manage pricing and indemnity. If we look at any other Personal Lines portfolio, such as Motor Insurance, most insurers have a well-established data model from nose-to-tail, supported by core technologies and a managed supply chain. Moreover, the ability to manage indemnity and service is founded upon a broad-based principle that the insured contacts their insurer before the claim is settled. In pet, much of the time, treatment has been applied (i.e. the policyholder has been indemnified) and the claim settled (paid for) before the insurer knows anything about it.
Product
Looking at the product, proposition and pricing issues, the CMA’s investigation isn’t likely to lay a glove on the challenges insurers are facing because insurance is a data-driven, experience-based knowledge management activity. Nor is the result of the investigation likely to address the data gap which most insurers are experiencing. Where it might touch on, but not in a positive way, is the adequacy of the products which customers can call on to pay their bills.
In addition, whilst the CMA investigates, the FCA may well use The Consumer Duty to look at the complaints which customers are registering today. Often these are particularly over difficulties in making the product perform as expected. Particularly, complaints seem to focus on getting claims paid quickly and fully, without an onerous amount of paperwork which the customer did not know they needed, was not set out clearly beforehand in any policy documentation or direction. Often the dialogue with consumers is insufficiently clear to allow the insurer to process the claim at speed and there are several insurers carrying payment backlogs because of the resource demand created by poor efficiency.
These issues play directly to the heart of the cross-cutting rules in Consumer Duty. If insurers can see this is happening, or have substantial backlogs or complaints, doesn’t that make the issues causing them foreseeable harm, both from a Product and a Claims perspective? The provision for not putting barriers in the way of customers existed long before Consumer Duty, but the additional cross-cutting focus on how products are designed and serviced, and ensuring information is appropriate to allow consumers to achieve their financial objectives, is now more onerous. With all of these requirements comes the need to provide evidence of the delivery of good outcomes and, without the data or the insight, how can you provide evidence?
Claims
The CMA’s estimate is that the UK Vet market is valued at £2bn per annum. Research from Tesco Bank, one of the UK’s largest Pet Insurance brands, suggested that 56% of cat and dog owners have insurance [3], which would suggest the Insurance Sector’s exposure is in the region of £1.1bn. Excesses notwithstanding, that’s a lot of claims payments.
As outlined above, Claims for Pet is backwards. It’s much more akin to claims for Human Health, than Personal Lines Motor or Home. Even then, it’s unlikely that someone with Private Medical would just turn up at their local Private Hospital or Clinic and ask to be treated. However, this is effectively what happens often with pets. Alongside that, Procurato’s research indicates there is a misunderstanding that a policy limit is not the same as a claims expense budget.
Procurato’s original research in 2023 [4] identified that, in effect, for many of the UK’s top 11 Pet Insurers, Claims was not in a good position. 75% of respondents said it took more than half a day to confirm coverage – on claims that in many cases have already been “settled”. Only 29% of respondents said the information provided by the vet or customer enabled them to validate the claim, and in more than 10% of cases additional information was needed. 34% of respondents to our research said they had to refer over 50% of all claims to a vet expert to understand whether the treatment was either covered or necessary. All of these are symptoms of inefficiency and drive cost and service failure into Pet Claims. At the root of that is a process which seems slow and cumbersome to indemnify customers.
It also means, because the information isn’t clear and the treatment has already happened, the insurer has none of the familiar control mechanisms for managing cost. Procurato has spent hundreds of hours mapping treatments and medicines and it’s evident that insurers are currently paying for expensive brand medicines when cheaper unbranded variants are available.
Moreover, most insurers are unable to determine whether all the treatment activities were completely necessary. There are few supply chain agreements in place, despite the opportunity that consolidation offers – which is that insurers could be setting up Vet Networks with some of these major groups. The original barrier, which was that customers were wedded to their local vet and there was great resistance to moving away from them, is a much lesser issue – because many of those vets are now part of a much larger group with whom deals could be done. Even where they are not, insurers can focus on the referral vet sector – where much of the high cost claims sit – and Procurato has been unable to identify a case where a consumer is loyal to a referral vet. Little in the CMA’s outline seems likely to address these issues.
Data
Procurato’s research also uncovered a concerning gap in relation to the collection of pet claims data which not only supports indemnity control and provides evidence good outcomes but also informs product and pricing. Of the respondents to our research across 11 of the UK’s top insurers, 95% said the data they received from vets could not be easily input into their claims systems. Almost 20% said the data they received could not be entered at all.
This lack of data means that, whether or not the CMA introduces cost or pricing controls for Vets and medicines, Insurers will still be unable to understand if they are spending the right money, on the right treatments and whether they, as one of the largest purchasers of vet services, are getting value for money. The mapping of ailments, treatments, and medicines and then the accurate inputting of claims data into such a model is the only way to gain control over indemnity and identify service hotspots or issues with individual vets – other than through complaints, which is not really living up to the obligations to mitigate foreseeable harm.
Procurato’s view
Having been active in Pet Insurance consultancy since 2014, we have seen this situation evolve in the UK and across Europe. Scandinavian Pet Insurance readers will be familiar with many of the issues listed above, as are we. Our view is that insurers need to act swiftly to begin to put in place the tools, infrastructure, and data capture mechanisms to ensure they are actively managing their Pet Insurance portfolios. Some insurers have already or are in the process of doing this and they are likely to be the ones who will benefit from whatever the outcomes of the CMA investigations are. They are also the ones who are most likely to be able to evidence good customer outcomes.
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