With pets considered by most owners to be indispensable members of the family, it’s counterintuitive that most pet insurance is structured and priced like property. Seattle-based Trupanion launched in 1999 to change that, relying on massive amounts of data and proprietary business intelligence technology to better assess the risk related to each individual pet and thereby price its insurance more like (human) health insurance.
It’s a big day for Trupanion as the company IPO’d on the NYSE (TRUP) this morning raising $71 million through the sale of 7.1 million shares at $10 per share (below its projected $13 to $15 initial range). Underwriters have a 30-day option to purchase up to an additional million shares. The company’s stock is trading up at $11.34 as of this writing for a market cap of more than $301 million. Major pre-IPO venture shareholders include Maveron (33.7%), Highland Consumer Fund (15.8%), and RenaissanceRe Ventures (12.7%).
Trupanion is the second largest US pet insurer on a revenue basis and the fastest growing. Data and personalized coverage, it would seem, is paying off. I caught up with CTO Craig Susen and Director of Business Intelligence TJ Houk this morning to discuss the ways that data sets the company apart.
“Our competitors want to price every policy the same. They want to cover bulldogs and shih tzus the same. They pick a number that they feel sounds good, that people will buy, like $29.95 per month,” Houk says. “But that limits the amount of coverage that they’re able to pay out to, say, $15 per month, which means that they have to change their policies to fit those limits. So they limit coverage on hereditary conditions for each breed or add in annual limits. That feels a lot like property to me. We’re the only insurer without annual or breed limits.”
Trupanion offers every pet the same level of coverage and pays out 90 percent against covered incidents – surgeries, diagnostic tests, medications, treatments and hospital stays. But to do so, it needs to price each policy uniquely and precisely based on the breed, age, and medical history of the individual pet. It’s no surprise that this sounds more like the health insurance you and I buy. The company’s average monthly premium for insuring a dog is $40 and while cats clock in at $26 on average.
“We will never raise your rates simply because your pet has a birthday,” the company’s website reads. Trupanion only adjusts rates based on changes in the cost of the average veterinary visit per breed in a given region.
The company analyzes as many as 1.2 million data points in issuing each policy, including details like the typical claims for each particular breed according to age and geographic location. This data is crunched by a dozen-person data team and fed into all departments across the company ranging from actuary to finance to marketing. And unlike most pet insurers, the company has built an internal underwriting capability, rather than relying on a third-party.
Another consequence of Trupanion’s data driven approach is that it’s able to integrate with veterinary hospital records and billing systems to collect patient data in real-time and thereby reduce claim reimbursement times from weeks to minutes. That not only helps vets get paid faster, but also reduces the up-front, out-of-pocket cost faced by pet owners.
“Economic euthanasia is one of the biggest challenges we’re trying to conquer,” Susen says. “When a pet owner gets a bill estimate for $10,000 in today’s economic environment, they find themselves making decisions that they otherwise wouldn’t. We want to change that and Trupanion Express hospitals is one way we can do that.”
Trupanion covered 169,570 pets across US, Canada and Puerto Rico as of the close of 2013 (a number that’s grown to more than 181,000 through March), resulting in $84 million in 2013 revenue, 90 percent of which came in the form of recurring monthly subscriptions. The company grew its revenue by 51 percent in 2013 and an additional 44 percent in Q1 of this year. That growth didn’t quite translate to the company’s bottom line, however, with Trupanion posting a $8.1 million net loss in 2013 (9.7%) and a $4.9 million loss Q1 2014 (19.6%).
With pet insurance penetration at a paltry 1 percent in the US – as compared to 20 and 40 percent in the UK and Sweden, respectively – there is plenty of greenfield opportunity ahead for Trupanion. US pet spending will increase to an estimated $58.5 billion according to the American Pet Products Association, $15.3 billion of which will go toward veterinary care — a 66 percent increase since 2006.
Speaking from experience, I can attest that one of the major reasons that more Americans don’t insure their pets is because coverage is both expensive and often ineffective at deferring the cost of veterinary care. Trupanion is using data science and a more human approach to change this narrative.
With its IPO behind it, a pile of fresh cash, and the legitimacy that comes with public company status, expect the company to double down on this data-driven approach.