How to price pet insurance: rating factors and a worked example
The main rating factors in pet insurance, how they combine into a premium, and a worked example priced by a real rating model, from base rate to Insurance Premium Tax.
Pet insurance is a good example of a product with a simple structure and a lot of variation underneath it. Most pet policies are priced with a base rate and a set of multiplying factors, but the factors for species, breed and age can move the price a long way.
This article covers the main rating factors, how they combine and a worked example priced by a real rating model. The rates used are illustrative and are not taken from any insurer.
The main rating factors
Species and cover limit
Cats and dogs have different claims patterns, so most products start from a separate base rate for each species. The base rate also depends on the annual vet-fee limit, because higher limits pay out more on serious claims. In our example model, the base rate for a cat ranges from £96 on £1,000 cover to £171 on £7,000 cover, and for a dog from £168 to £298.
Age
Claims become more frequent and more expensive as pets get older. Age is usually rated in bands, with separate bands for cats and dogs. In the example, a cat aged 2 to 4 has a factor of 1.00 and a cat aged 11 or over has a factor of 2.10.
Breed
Breed is one of the strongest factors. Pedigree breeds, and breeds prone to particular conditions such as brachycephalic dogs, attract higher factors. In the example, a moggie has a factor of 0.90, a Persian 1.30 and a French Bulldog 1.75.
Region
Vet fees vary by region, and are highest in and around London. The example uses a factor of 1.30 for Greater London and 0.85 for Northern Ireland.
Excess and neutering
A higher voluntary excess lowers the premium, and neutered pets often receive a small discount. The example applies 1.10 for a £50 excess, 1.00 for £100 and 0.86 for £250, and a 5% discount for neutered pets.
Tax
In the UK, Insurance Premium Tax at 12% is added to the premium.
Underwriting rules
Pricing is only part of the model. Most pet products also have rules that decline or refer certain risks. The example model:
- declines pets older than 14 at the start of cover;
- declines quotes where the breed does not belong to the species, such as a cat recorded as a Labrador;
- refers £7,000 cover on high-risk breeds, such as French Bulldogs and Persians, to an underwriter.
A worked example
Take a 3-year-old neutered Persian cat in Greater London, with £4,000 annual cover and a £100 excess.
| Step | Value | Reason |
|---|---|---|
| Base premium | £142.00 | Cat, £4,000 limit |
| × Age factor | 1.00 | Age 3, band 2 to 4 |
| × Breed factor | 1.30 | Persian |
| × Region factor | 1.30 | Greater London |
| × Excess factor | 1.00 | £100 excess |
| × Neutered factor | 0.95 | Neutered |
| = Risk premium | £227.98 | Rounded to the penny |
| + IPT at 12% | £27.36 | |
| = Annual premium | £255.34 | |
| Monthly | £21.28 | Annual premium divided by 12 |
The calculation is 142 × 1.00 × 1.30 × 1.30 × 1.00 × 0.95 = 227.98. Adding 12% IPT gives £255.34 a year, or £21.28 a month.
Two other cases from the same model show how much the factors matter. A 6-year-old Labrador in the North on £2,000 cover with a £250 excess comes to £269.76. A 2-year-old neutered French Bulldog in the South East on £7,000 cover comes to £621.47 and is referred to an underwriter.
Order and rounding
The order in which factors apply, and where rounding happens, both affect the final price. In this model all factors are multiplied together, the result is rounded to the penny, and IPT is calculated on the rounded figure. A different order can change the result by a penny or more, which is why every model should be tested against worked examples like the one above.
Building the model
The full model, including every rate table, rule and test, is available on our model building page, where you can download it as a file. Each step of the calculation for a quote can be inspected in the quote debugging guide, which uses the French Bulldog case.
The same structure works for most pet products. A real product might add more breeds, finer age bands, postcode-level territories, multi-pet discounts, co-payments for older pets or different cover types such as accident-only and lifetime. Each of these is another lookup table or rule in the same model.
Getting started
If you are launching or repricing a pet product, send us your rating guide or spreadsheet. We will build it into a tested model with no implementation fee and nothing to pay upfront. Talk to our team.