FOOL'S EYE VIEW
How To Save On Your Vet Bill

By David Kuo (TMFDragon)
July 4, 2002

Insurance products fall into three main categories. Those that you must have, those that make you feel better by having them, and finally, those that are just downright ridiculous.

Should you own or drive a car, the only insurance product that you must have is motor insurance. We all know that there are lots of people driving cars on the road that don't have any insurance cover at all. Those drivers are, without putting too fine a point on the matter, breaking the law. They could find themselves in very serious trouble, should they ever be caught. By law, motorists must have at least third-party insurance cover just in case they cause an accident to another person or to another person's property. If you happen to own a posh motor, or are particularly accident-prone, then you might consider taking out fully comprehensive insurance.

The next category of insurance products is so-called "comfort insurance". This type of insurance makes you feel happier and more comfortable knowing that you will be compensated should anything bad happen. Health insurance, travel insurance and household insurance all fall into this category.

Now to the final category of insurance products, namely the "downright ridiculous". These special products could, say, cover you in case of alien abduction or when you're struck by lightening whilst out pottering around in the garden tending to your prize dahlias. Now what are the chances of those things happening?

Pet insurance

I was recently offered pet insurance -- that is, to insure my two moggies against unexpected vet bills. Anyone who is a pet owner will know just how expensive those visits to the vet's surgery can be. It is not just the animals that are quivering in the waiting room -- the owners are quaking at the thought of facing the vet's bill! So could a mere £9 a month (the quote given to me) be the answer to the vet cost misery?

The high costs associated with veterinary services are in part due to the lack of qualified vets practicing in the market. I say in part, because the other problem lies in the supply of prescription-only medicines to the veterinary trade. In fact, the Competition Commission is looking into the supply of veterinary medicines because it considers that a monopoly-type situation might be in existence. The inquiry is still in its early stages and the watchdog expects to submit its report to the Secretary of State for Trade and Industry in January 2003.

The enquiry could find that a monopoly situation exists among the manufacturers, wholesalers or even veterinary surgeons, which prevents or distorts competition. Perhaps the watchdog may be able to eventually regulate the price of veterinary medicines. However, it will find regulating the price of veterinary services a totally different kettle of fish.

Pet comfort

So back to the issue of pet insurance -- is it "comfort insurance" or "downright ridiculous"? Pet haters will no doubt plump for the latter. Pet lovers, who have been faced with exorbitant vet bills in the past, might on the other hand, opt for the former. But let's not make any bones about the matter. Insurance companies exist to make a profit. They have assessed the likely payout for a population of customers. They must therefore collect enough in the way of premiums from those customers to cover the payouts and make a profit on top of that.

It is possible, actuarially speaking, to determine within certain confidence limits just how many animals will require the services of the vet. However, although it is possible to assess the risk of that happening, it is not possible to determine precisely which of those pets will need to claim. Just as eight out of ten cats may prefer a particular brand of cat food, you will never know whether your moggy is going to be the one that is going to balk at the sight of it. That is the difference between risk and uncertainty.

Do I need pet insurance?

Nobody knows if their vet bills will exceed the premiums they'll pay to the insurance company over a pet's lifetime. However, everyone can work out whether they should take out a pet insurance policy. For instance, a £9 per month premium equates to £108 per year. If, on average, you go to the vet every six months at £50 a time, then the effective cost of the insurance comes to £8 ((£108-(£50*2)). In this situation, effectively paying the £8 excess should deem the policy as a nice-to-have "comfort insurance". Of course, the key is just how many times in future will the vet be called in to save another of Lucky the Cat's nine lives. The more scrapes he gets into, the more you'll save.