More U.S. pet owners turn to pet insurance to protect four-legged friends

Two years ago, Charles Smith's beloved Great Dane, Buzz, came down with what his veterinarian thought was bloat, a digestive-tract disorder considered the second-leading canine killer after cancer.

Turned out it was a just a scare - that time. But it made Smith uneasy.

Concerned that his 150-pound dog was also at risk for other maladies prevalent among dogs of Buzz's size, Smith hit the Internet in search of pet insurance and signed up for a plan.

A month later, Buzz suffered a gastric attack that required emergency surgery to remove his spleen. Cost: roughly $5,000. Smith's share: about $2,700.

"A big dog can mean big things happen to them," he said.

Smith, 36, a water-heater salesman from Holmes, Delaware County, said insurance coverage made the difference between being able to pay out of pocket and going into debt.

Virtually nonexistent in the United States 15 years ago, pet insurance has grown 20 percent a year over the last decade. Revenues totaling $550 million in 2010 are estimated to reach $880 million by 2014.

"The role of pets in American families has changed pretty dramatically," says Michael Currie Schaffer, author of One Nation Under Dog, which chronicles the nation's $50 billion pet industry, where veterinary expenses run second only to food.

Pet insurance, say Schaffer and others, is a natural extension of the deepening bond between humans and their four-legged friends and the corresponding explosion in the pet consumer culture: dog biscuits infused with foie gras, doggy day spas, jeweled collars, and faux fur jackets under the Christmas tree. "Our pets live with us as members of the family," says Schaffer. "There's a sense that if Aunt Mildred had cataract surgery, can't I do the same for my dog?"

Yet only about 1 percent of American pet owners insure their animals, compared to 25 percent in the United Kingdom, where pet insurance has been well-established for close to four decades.

Advances in veterinary medicine - neurosurgery, chemotherapy, even organ transplants - have saved many animals. But the vet bills for specialists and complicated surgeries can run well into the thousands of dollars.

Surgery to replace a Labrador retriever's bad knees or a Persian cat's faulty kidney - medically unthinkable only a few years ago - can top $18,000.

"When I was growing up, when your pet got sick, you put them down," said Mike Hemstreet, a software programmer who runs Pet Insurance Review, a website where consumers can compare rates among nine independent companies offering pet insurance.

Navigating plan options can be tricky; coverage plans offer a wide range of variables.

No policies cover preexisting conditions. Many plans don't cover genetic conditions. Others exclude older dogs and cats, or large breeds of dogs, or breeds with a history of health conditions. Most have caps on the costs of treatment per year. All have deductibles. Premiums can vary depending on zip code.

At Philadelphia-based Petplan, rates average about $18 per month (or $216 year) for a cat and about $33 a month (or $396 a year) for a dog.

Smith chose Indiana-based PetFirst because it would accept his six-year-old Great Dane when the life expectancy of such large breeds is less than 10 years.

In addition to his $51 monthly premium, Smith pays a $50 deductible. PetFirst pays 90 percent of the bill for almost everything else: treatment, tests, prescription drugs, and routine vet exams.

But, as in most plans, there also is a per-incident cap of $2,500 and an annual cap of $12,000. And clients must pay the full cost out of pocket and are then reimbursed by the company.

"Pet insurance is for people who would do anything for their animals and don't have thousands to pay for it," says Hemstreet.

How about downsizing one's apartment to pay vet bills?

That's what Chris and Natasha Ashton did to cover the $5,000 cost of treating their cat in 2001 when the couple was attending the Wharton School and their year-old cat, Bodey, was stricken with a mysterious kidney ailment.

"They ran every test there was and thought she might need a kidney transplant," said Natasha Ashton. "In retrospect, she was constipated."

The ordeal gave the Ashtons an idea for their graduate school project.

Today the couple own Petplan, one of the nation's largest and fastest-growing pet insurance companies. They were able to offer greater coverage - such as coverage for hereditary conditions - than other plans because of the rich trove of actuarial information provided by their sister company, Petplan UK, which was founded 35 years ago.

"It didn't make any sense to us that Americans spent more per capita on their pets but so few had insurance," said Natasha Ashton.

A 2010 study by Consumer Reports found that pet insurance may not be worth the cost for many pet owners. They might be better off just setting aside an emergency fund for unexpected expenses.

Still, insurance may offer peace of mind, industry officials say. One in three dogs gets sick or injured each year, according to Petplan. And for some pets with chronic conditions, in the long run insurance can save money.

Last fall, Petplan joined with Capital Blue Cross in central Pennsylvania to offer pet insurance to its human clients in what may be the first such partnership.

Blue Cross officials said they were persuaded by the statistics - $12 billion spent on veterinary care last year.

"The amount Americans spend on pet care is no surprise when you consider 68 percent of the population has pets, and 98 percent of them consider pets part of the family," said Stacy Balaban, Capital Blue Cross' senior director for strategic development.

Shelters too - like Operation Ava in Philadelphia - are now offering 30 days of free health insurance with every pet that is adopted.

The limited insurance offered under the Shelter Care plan, a division of Petcare insurance, helps defray costs of caring for a pet that may have contracted a contagious disease in its trip through the shelter system, said Ray Little, Operation Ava's director of rescue and adoptions.

Trial health insurance coverage for shelter pets is a win-win, says Howard Nelson, president of Doggie Style, a Philadelphia pet store chain that operates Operation Ava shelter and adopts animals through its stores.

For insurance companies, it may mean a customer for life. For homeless pets, he says, it may mean the difference between having a lifelong home or returning to the shelter, which 10 percent of the animals do.

"People have a lot of expenses when they bring a pet home," says Nelson. "To have illnesses covered, even a portion of the expense, can help keep animals in a home."