It’s been joked about that Warren Buffett must have been royalty in one of his past lives. For one thing, he’s the reigning king of stocks. Plus, his love of moats must have originated somewhere.
But what about pets?
It turns out there is a pet company that combines Buffett’s love of moats and insurance: Trupanion.
Trupanion was born from its founders’ family’s inability, when he was a child, to pay for a necessary operation for his dog. Darryl Rawlings didn’t want other families to experience this hardship and created Trupanion to open the door to the accessibility and affordability of pet healthcare.
Pet Insurance Is Still Pretty Novel
In the last 20 years or so, pet insurance has become more popular. Yet, of all the pet owners in North America, not even 3% currently hold a pet insurance policy.
Canada and the United States lag far behind their pet-owning counterparts in countries like the United Kingdom and Sweden—25% of pets in the UK and 40% in Sweden enjoy insurance coverage. According to Statista, among pet owners:
- 5% never take their animal to the vet
- 35% only take their animal to the vet once annually
- 12% take their animal to the vet every month
Visiting the vet’s office infrequently can mean not catching a diagnosis until it’s too late, making Trupanion a compelling option if pet insurance catches on in the US as it has in European countries.
With 20 Years of Data, Trupanion’s Moat is Enviable
One of the ways an insurance company succeeds is by understanding potential policyholder payouts. Because Trupanion was one of the first entrants in this market, their edge over the competition is substantial.
The company has over 20 years’ worth of data on pet breeds, the people who care for them, and how much that care typically costs. This helps the company to assess each policy’s risks with greater accuracy, pricing each policy appropriately while also offering better value.
With the broadest industry coverage and no limits on payouts, pet owners choose Trupanion, stay with their coverage, and continue paying annually — even as rates increase.
In 2016, Trupanion insured 344,000 pets, retained 98.6% of policyholders, and made an average monthly revenue of nearly $48 per pet. By 2020, the company had 863,000 pets enrolled, kept 98.71% of policyholders, and made an average monthly revenue of over $60 per pet. That’s impressive growth in a relatively short time period.
Over the years, Trupanion has bolstered its earnings through the confidence of veterinarians around the nation. Customers consider their vets credible and are much likelier to purchase insurance when it comes with their vets’ seal of approval. Plus, vets directly interact with Trupanion via software that helps streamline finances for pet healthcare.
Using Trupanion’s software program, the vet receives payment directly after a normal visit or an emergency procedure and also shares up-to-date information between the vet and Trupanion regarding the animal’s health history and current condition. These benefits continue securing Trupanion’s valuable castle moat.
The jump on its competition and huge opportunity translates into rapid growth. By the end of Q1 2021, Trupanion had over 1.1 million policies, 37% more than at the end of Q1 2020. Revenue grew by 40%, to over $504 million, resulting in revenue growth of over 20% in each of the last 56 Quarters.
Trupanion’s Goals in the Long Term
While the company has enjoyed this positioning for quite some time, competition is growing.
Established insurance providers like Allstate, for instance, have added pet insurance to company rosters. Smaller companies, such as rental insurance provider Lemonade, have also added pet care insurance. Small, niche providers, like Healthy Paws, have also begun to storm the castle.
Can Trupanion continue reinventing the wheel it created?
The founder’s goals over the next several years are to bring annual revenue to $1.5 billion by 2025 by expanding partnerships, creating new types of pet insurance, and even foraying into pet food and location devices, such as GPS chips.
In a grab for more pet lovers, the company even partnered with shop-at-home pet food giant, Chewy.com. Through the partnership, Chewy’s customers can purchase a pet policy right from the Chewy website — a huge potential subscriber base for Trupanion.
Is This an Opportunity? Trupanion — The Bottom Line
Investors who look at the above can see just how much potential lies in this pet insurance provider. At the same time, they might wonder…just where are the profits?
Like many fast growing companies, Trupanion has invested heavily in technology, marketing, and sales in an effort to continue boosting policy sales.
The company spent more on operating expenses in 2021 than in 2020. However, this shouldn’t deter an investor. While the company’s net losses widened, they are beginning to diminish.
It’s important to keep a close eye on the company’s operating expenses moving forward and gauge its moves toward profits. From a valuation perspective, Trupanion has upside to $64.57 per share, representing 23.4% upside.