Briefing: Is pet insurance reaching a breaking point?

Pet insurance is no longer just a niche product. With 4.6 million live policies and annual premiums at record levels, it has growing into an important line of business for personal lines insurers.

But, as the sector expands, so too do concerns around whether it is delivering on its promise to customers.

Complaints referred to the Financial Ombudsman Service (FOS) have risen by more than a quarter over the past year, according to my recent analysis of FOS data obtained by market intelligence firm Insurance DataLab, with pet insurance now the fourth-most complained about business line.

Even more concerning is that the FOS upholds more than half of these cases in favour of the customer – the highest uphold rate of any line. These figures clearly suggest that something isn’t working.

Whether it’s poor communication, product complexity or claim delays, customers are increasingly left feeling that their cover hasn’t delivered. And this raises uncomfortable questions for insurers about Fair Value and regulatory expectations.

Claims are also on the rise according to the latest data from the ABI.

In 2024, insurers paid out a record-breaking £1.23bn – more than double the level seen a decade ago.

That equates to 4,900 claims every single day, with the average cost now standing at £685. While this reflects the rising sophistication and cost of veterinary treatment, it also underscores the pressure building within insurers’ operating models.

Market reputation

At a time when household budgets are stretched and premiums are rising, customer expectations are naturally increasing. If a pet owner pays for cover, but feels misled or disappointed when it comes to a claim, that undermines trust – not just in one insurer, but in the market as a whole.

So what should insurers do? First, there needs to be a much sharper focus on customer communication and managing expectations. That means clearer explanations of exclusions, better handling of claims and a more transparent view of what a policyholder can reasonably expect.

This latter point is particularly important when it comes to price increases at renewal, something that I personally know is a massive issue in the market, with prices soaring as pets grow older even in the absence of any major claims.

Second, insurers must look at whether their products are genuinely aligned with customer needs. Fair Value is not just about price – it’s about outcomes.

A cheap policy that rarely pays out will always fail that test, while an expensive product with limited coverage for ongoing conditions is also going to fall foul of the rules. Again, something that is becoming all too common.

But pet insurance still has huge potential. More people than ever are owning pets and the emotional connection between owners and their animals means people are willing to invest in protection.

That emotional link also raises the stakes, however, and policyholders need to know their pets will be in safe hands should the worse happen.

If insurers don’t act now to restore confidence and deliver better outcomes, pet owners could soon be finding other ways to protect their pets.