Wal-Mart to start-ups, more dip into pet health insurance

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While roughly 45 million Americans struggle to access medical care, turns out many pets can access high-end medical treatments such as kidney transplants or acupuncture—thanks to the growing availability of pet insurance. Even Wal-Mart has dipped its toe in pet health insurance, albeit in Canada.

Forget wrangling about Obamacare. Turns out Fido and Whiskers may be getting better care than humans.

The U.S. pet products sector—which encompasses everything from pet accessories to luxury in-flight veterinary care—has created a $55 billion industry, according to the American Pet Products Association. People's love for their pets has also created the need for more complex medical procedures—a growing demand pet insurers hope to fill.

People are buying pet insurance as they're treating their pets like family members, according to Veterinary Pet Insurance (VPI), the oldest and the largest pet insurance provider in the U.S.

Founded in 1982, VPI has cornered more than 50 percent of the market. During the past 20 years, for example, dogs have moved from the backyard into the living room into the bedroom, said Adam Fell, a VPI spokesman.

"Basically, anything that somebody can do to a human, a veterinarian can do to your pet," Fell said. "But with that comes the increase in cost."

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The growing demand for pet insurance

The estimated size of the North American pet insurance industry is close to $500 million, with an average growth rate of 13 percent a year, according to the North American Pet Health Insurance Association. Estimated spending on vet care will increase 4 percent this year to $14.2 billion, according to the pet product association.

The pet insurance industry is forecast to grow organically as consumers get more familiar with pet insurance brands. The sector should also benefit as more companies add pet insurance to their portfolio of employee benefits, said Kristen Lynch, executive director of the pet health insurance association.

Earlier this year, retail giant Wal-Mart Stores began offering pet insurance to its customers in select stores in Canada, Lynch said. Walmart Pet Health Insurance is offered and underwritten by Western Financial Insurance.

The fastest growing segment of VPI is voluntarily pet insurance, as more employers are offering the option as an employee perk. More than 3,000 companies offer VPI pet insurance, including one-third of the Fortune 500 companies, according to VPI. It is part of the Nationwide Insurance network and has insured 485,000 pets across the country.

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Chris and Natasha Ashton, founders of Petplan
Chris and Natasha Ashton, founders of Petplan

Petplan: Pet insurance start-up

With so much growth on the horizon, start-ups have begun sniffing around pet insurance.

Entrepreneur Chris Ashton founded Petplan, a Philadelphia-based pet insurance small business, with his wife Natasha. Less than 1 percent of America's 160 million cats and dogs are insured, leaving lots of room for growth, he said.

The Ashtons came from the U.K. to work on their masters in business administration at Philadelphia's Wharton Business School in 2002. But then their white, fluffy Birman cat, Bodey, got sick. The vet bill came in at close to $5,000, forcing the MBA students to max out on their credit cards and downsize to a smaller apartment.

The Ashtons searched for a better way to deal with vet bills and eventually founded their own company in 2004. The couple managed to get an exclusive license for the U.S. and Canada from Britain's Petplan, a large pet insurer in the U.K. The Ashtons also got access to Petplan's insurance claims, which helped to create a tiered pet insurance pricing model based on the risk, instead of a one-price-fits-all approach. Monthly premiums average about $30.

Petplan has been profitable for four years, with annual revenue of $40 million in 2012. The company has more 100 employees, and has attracted investors from Europe and the U.S.

Beyond start-ups and Wal-Mart, other businesses have branched out into the pet health insurance industry. Cabela's is an outdoor gear retailer. The Sidney, Neb.-based company launched Cabela Pet Insurance in 2011. Cabela customers, outdoor and hunting enthusiasts, wanted to take care of their pets as well.

But overall, there hasn't been a flood of pet insurance start-ups because of the high bar of entry. Starting a U.S. pet insurance business is challenging in part because the U.S. insurance system requires individual state licenses for pet insurance businesses.

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Diana Goodrich, 59, from Dunedin, Fla., decided to get Petplan insurance for her Alaskan Malamute, Shadow, after some of her vet bills with a previous pet ran into the thousands of dollars. During the past five years with Petplan, Shadow had several extensive treatments and tests. He now gets acupuncture treatment every few months for his epilepsy. Petplan reimbursed her nearly $3,000 or 68 percent of the $4,335 in vet bills. She also pays $30 a month for the insurance.

"What I like is that they [Petplan] do authorize alternative methods and also that you can select wherever that you want to go to, you are not limited," Goodrich said.

Lynch of the pet health insurance association said that people treat their pets as family members and are willing to spend more on a pet's nutrition or vet bills. "Insurance becomes an obvious choice to people who value their pet at that level."

By CNBC's Anna Andrianova. Follow her on Twitter @AndrianovaAnna.

CORRECTION: This version corrects the spelling of Goodrich.