Trupanion is a leading provider of pet insurance, the fastest-growing sector in the pet market.
TrupanionJanuary 31, 2021
Thesis - Trupanion is a leader in providing medical pet insurance. The pet industry in the US is now a $99bn market and over the last 25 years has increased in size every year. This highlights the size and strength of this tailwind. Over lockdown, there was a further step change in pet ownership as many households sought extra companionship. Within the broader pet market, pet insurance is a particularly interesting vertical. In the US and Canada, only 1% or 2% of pets are insured for medical emergencies. In Europe, this number is much higher; 25% of pets in the UK are insured and around 40% of pets in Sweden. With Trupanion, a pet owner can pay a fixed monthly premium (think subscription) to make sure in the event of an emergency their pet can receive treatment. The service enables pet owners to budget more effectively and smooth their spending over a long period of time, ultimately buying peace of mind. Trupanion is a pure-play investment in the increased penetration of pet insurance across its key markets.
Financials & Performance - Trupanion has been executing strong and consistent growth for several years, with over 646,000 enrolled pets. Over the last 8 quarters, revenue growth has been between 25-30% and showed a slight acceleration in the second half of 2020. In 2019, the overall industry grew $330m, of which 29% was contributed by Trupanion, the leader. They have average monthly retention of 98.69%, highlighting its stickiness. Whilst still not profitable, the unit economics are healthy, acquiring a pet customer for $261 with an expected value of $570.
Leadership - The founder and CEO is Darryl Rawlings, who has led the company since its inception in 1998. He still owns a significant amount of shares and has an approval rating of 78% on Glassdoor.com, which is not very high in comparison too many other leading companies.
Risks - The primary risk here is that penetration of pet insurance remains low in primary markets. If that were to be the case, the total addressable market for Trupanion would be smaller than hoped. More recently, further competitive challenges have emerged. Lemonade, the popular new insurance brand announced they would be expanding their product lines to include pet insurance. On the one hand, existing Lemonade customers can easily add pet insurance to their overall package. On the other hand, Trupanion is a specialist in the area, building technical capability in its own underwriting, as well as relationships with veterinary practices. In any case, if penetration does increase, the market should be big enough to sustain multiple players.