Chris Blatchly, Chief Digital Officer & Consulting Leader for Insurance, Cognizant

In the midst of COVID-19, puppies and kittens have emerged as go-to companions to get us through the extended public healthcare crisis. This is one important reason pet insurance is touted to be the next hot growth segment for personal insurance carriers, as the global market is projected to surpass $10 billion by 2025 and grow 6.7% annually.

With the market evolving at such a pace, there are some core trends and themes that insurers should keep in mind as they look to keep up with the quickly evolving market and changing consumer habits.

Emerging trends in pet ownership: the millennials

The customer landscape has changed for the pet insurance industry, with millennials now the largest segment of pet parents. They own more pets (about 35% of total pet ownership) and spend more on their pets than any other generation currently, serving organic foods, buy flavoured medications, hire services, host pet parties and even take their pets on holiday.

Chris Blatchly

They also lead the charge in tech adoption. As they have grown up in an increasingly digital world, they expect quicker and more efficient service from insurance providers, and any other service provider for that matter, than ever before.

Such factors highlight the demand for customer-centric services within the pet insurance industry, that include personalised, nurturing communications and an interactive, immersive experience.

Increased demand for pet tech

Pet-oriented technologies (pet tech), such as wearables, are addressing increasing concerns around pet health and security. The pet tech market includes activity monitors, GPS trackers, RFID sensors and accelerometer sensors, among others.

Wearable technology has already demonstrated value in the life and health insurance space, so it is only a matter of time before it makes deeper inroads in the pet insurance market too.

The opportunities for pet tech are vast, from automated food dispensers and climate-controlled pet houses to pet doors with facial recognition. These types of devices and sensors help support a data-driven approach to underwriting and claims processes.

How pet insurers are keeping up with the market

Digitally native companies, known as insurtechs, are already bringing new capabilities to the pet industry, with a focus on enhancing the customer experience.

However, the rise in millennial pet owners and the growing use of pet tech wearables will be key drivers for future decisions and bring forth a new range of considerations, outlined further below, which will lead to some key themes that insurers should keep in mind as they plot their pet strategies.

1. Considering different business models

A digitally enabled approach to product innovation can lead to new business models, such as peer-to-peer (P2P) insurance.

Millennials share many common interests in various social networks and they generally have a higher risk tolerance than older age groups, which suggests they would be open to joining online communities. P2P insurance leverages the power of social networks to reimagine the very old concept of a mutual insurance company. Social networks allow like-minded people to easily find each other and then pool their premiums to fund a pet insurance company.

Other approaches to consider include cross-selling complementary services. Millennials are more open to buying or using adjacent or complementary non-insurance services/products from their insurers, as demonstrated by their adoption of wellness offerings. For example, customers of Embrace can add onto the company’s Wellness Rewards plan to get reimbursed for the pet’s routine care or preventative steps to avert emergencies.

2. Modernising core systems

Legacy core systems of existing pet insurers were built, patched and upgraded to support traditional manual processes. These aging systems are bound to affect the flexibility and scalability that are required for success. Insurers should reimagine and modernise their core systems, rules and processes to promote flexibility, agility, innovation and speed-to-market. The “core” of this effort should revolve around business capabilities such as flexible configuration of products and automated quote generation, as this will ensure that the derived technical capacities will best align with business outcomes.

3. The role of AI

Pet insurance carriers can accelerate their digital evolution with advanced artificial intelligence (AI), which will enable them to automate core capabilities in new ways. For example, intelligent process automation (IPA) will enable the direct issuance of low-value/low-risk policies and the straight-through processing of low-value claims. IPA will also help integrate optical character recognition, intelligent character recognition and deep learning technologies. Some examples include reading unstructured scanned medical bills and intake claim documents, and creating an automated first notice of loss.

AI will also enable machine learning-based decision support for underwriters and claim adjustors and, when coupled with intelligent automations, will allow carriers to continuously mine case and claim data to identify fraud and security risks in real time.

4. From indemnification to loss prevention

Finally, another potentially strong differentiator for pet insurers is loss prevention services. Pet owners’ two overriding concerns are their pets’ health and their security. One way that pet insurers can continuously engage with their customers and better promote safety are device- or sensor-driven alerts. By reducing injury claims, this can in turn translate into premium discounts. The growing use of devices and wearables provides a great opportunity for insurers.

By enabling their systems to integrate with third-party wearable-device data, pet insurers will gain significant insights. They can continuously monitor these data streams and pass contextual recommendations to the pet owner to help improve their pet’s health. Doing so means a proactive approach to reducing probable claim losses, versus the traditional reactive approach.

Barking up the innovation tree

The pet insurance market is ripe with significant untapped opportunity as evidenced by changing customer dynamics, the advent of pet technology and entry of insurtech players. Insurance carriers that take advantage of these developments to innovate with new customer-centric insurance products and services, by driving a holistic digital strategy, will be tomorrow’s market leaders. This journey will not be easy, given the challenges of updating legacy processes, modernising archaic systems and changing consumer behaviours. Designing a lean, cost-effective and digital-enabled operating model is critical, as insurers reimagine the future of pet insurance.

By Tricia Joyce

Starting a small business can be an exciting, if sometimes stressful, journey. While finally being able to be your own boss is definitely a perk, running your own business isn’t always easy.
One of the greatest hurdles that entrepreneurs are often underequipped to deal with is taxation. How much should you be paying per year, and what are the forms and processes? In our previous post ‘Corporation Tax – A Guide for Small Businesses’, we discussed the ins and outs of corporation taxes and other basic information. Today, we’re going to look at the specifics of paying tax as a Limited Liability Company (LLC).

Benefits of an LLC

Why choose to register as an LLC? Well, most entrepreneurs might think that registering as a sole proprietorship might be enough, but there are certain advantages to LLCs. Generally, LLCs offer more flexibility and liability protections, without the complicated procedures and extra costs of other business models.
Another main draw of forming an LLC is that they’re taxed differently from S corporations. The two models are fairly similar in that they protect the owners from double taxation. However, LLCs offer more flexibility, and have less complicated procedures. S corporations are also required to file business tax returns, which are not required for single-owner LLCs.

How Are LLCs Taxed?

As a “pass-through entity,” LLCs have a tax system that sets them apart from corporations. Like sole proprietorships, the profits and losses of an LLC are coursed through business owners or members. These business owners report this information on their personal tax returns, rather than filing for a separate corporation and personal tax.

Single-member

According to the Internal Revenue Service, single-member LLCs are considered “disregarded entities.” This means the LLC’s activities must be filed as part of the owner’s federal tax return.

Single-member LLCs must use the Social Security Number (SSN) or Employer Identification Number (EIN) of the owner for reporting income tax. Generally, these activities will be reported through Form 1040 or 1040-SR.

If the LLC is owned by a married couple in a community property state, and the couple continue to treat the entity as a disregarded entity for federal tax purposes, or as a partnership for federal tax purposes, then the LLC remains as reported. However, in non-community property states, the LLC must file as a partnership. It is important that you make sure to research what kind of rules for joint ownership of an LLC exist in your state.

Multi-member

If the LLC is owned by multiple members, such as a married couple as given in the example above, income tax is generally paid as a partnership. This means that individual partners will pay tax based on their lawful share of ownership in the LLC. This is called a distributive share, and is usually found in proportion to a member’s ownership percentage of the business.

The Balance has a small guide on paying taxes as an LLC. In brief, the partnership will file an information return on Form 1065. Each partner will then receive a Schedule K-1 showing the share of profits or losses in the LLC.

The Schedule K-1 information must then be transferred to Schedule E – Supplemental income. Each type of income, as broken down on your Schedule K-1, will be inputted in specific sections on the Schedule E. You can then include the income as reported in your Schedule E in the relevant sections of your Form 1040 or 1040-SR.

Is an LLC Right for You?

LLCs are favored for their adaptability and relatively simple procedures. However, if your multi-member LLC needs to retain a certain amount of profits, you may find it more beneficial to register as a corporation. In general, however, LLCs are great options for small business owners. Make sure to do extensive research on the tax laws in your state to ensure you’re choosing the right model for your business plan.