A new report by independent market analyst Datamonitor reveals that the pet insurance market is one of the fastest growing insurance markets in the UK and is set to expand further. In 2007, GWP grew by almost 17% to an all time high of £440 million. Datamonitor forecasts the market will grow a further 58% to attain a value of almost £700 million in 2012.

The key driver behind the premium income growth in 2007 and previous years has been the steady increase in the number of tails under cover, as more pet owners have opted to insure their dog or cat. The product penetration rate has increased over the last six years and reached an all time high of 26% of pet owners in 2007.

Higher premium rates have also contributed to the market growth. Insurers have been forced to increase premium rates, often by substantial margins to cover the costs of higher claims bills. However, a number of insurers have expressed concern that the substantial year-on-year increases in premium rates may damage the market in the future, pricing some consumers out of the market.

The primary driver forcing up claims costs has been the increase in the number and cost of veterinary treatments, which have become increasingly sophisticated in recent years. As such, insurers and veterinarians will have to work together to limit cost increases.

The total UK pet insurance market is forecast to reach a value of £697.8 million in 2012 as a result of compound average annual growth rates of 8.7% over the next five years. This expansion will be driven by a steady increase in the number of policyholders, with a general increase in the proportion of tails under cover. Premium rate increases, also fuelling the market expansion, are forecast to be approximately half the annual rate of increase in the market historically, as premium rate inflation is more restrained.

Moreover, the growth in the number of policyholders will be lower than in past years as the market approaches what many insurers believe to be the lower end of the product saturation point and fewer new owners take up the cover.

Related research: UK Pet Insurance 2008