UK pet insurance premiums are forecast to reach £1.1 billion by 2018, finds a new report by Timetric. The market’s growth will continue to be driven by rising veterinary fees, high claims costs and advances in veterinary treatment.

According to Timetric, pet insurance in the UK is expected to reach £1.1 billion by 2018 at a CAGR of 6.9% during the forecast period of 2014-2018. Most people underestimate the cost of owning a pet over its lifetime. Advances in veterinary care have resulted in animals enjoying extended lifespan which requires more complex and extended treatment. Therefore, insurers and animal care specialists are expected to combine their efforts in promoting responsible pet ownership, while at the same time raising awareness about the need to insure pets while they are young and healthy.

“Partnerships with retailers, vets and animal welfare organizations offer insurers an opportunity to reach their target audience and enhance their market position. Higher vet bills are expected to lead to greater awareness of the need of pet insurance. Timetric predicts that with households ready to spend more on their pets, pet insurance sales are expected to remain strong over the next five years,” says Laura Balkarova, Economist at Timetric.

According to the report, low product penetration offers significant opportunities for pet insurance providers in terms of uninsured customers. The development of capped or limited cover policies, specifying how long, or how much, pet owners can claim for the treatment of a particular condition has made the product more affordable.

The category is consolidated around a small number of competitors who underwrite policies for the household brands. While in 2013, the top 10 PRA-regulated insurers held 90% of the UK pet insurance market, the rising cost of vet claims led to insurers raising premium rates, with some having pulled out of the business altogether. As some of the larger insurers back away from the market, insurers in Gibraltar and smaller online-based providers continue to grow their presence in the category.

“Given the limited ability to switch between providers at a renewal stage, customers are expected to remain sensitive to any further increases in the price of pet insurance products,” Balkarova adds. “While insurers continue to see simple accident and injury-policies as an entry point for new customers, they are expected to further engage clients with premium product options.”