Trupanion's incoming CEO welcomes competition as Nationwide drops pet policies

➤ The pet insurance space is extremely competitive, but Trupanion's incoming CEO insists this will boost consumer education around the business line.

➤ Trupanion has been using artificial intelligence for several years to enhance multiple areas of its business operations.

➤ Pet insurance is still a heavily underpenetrated market, and Trupanion sees significant opportunities for growth in the years ahead.

Take-up of pet insurance is rapidly increasing in the US, pushing the National Association of Insurance Commissioners to separate reporting of pet insurance business in statutory filings from the inland marine line. Data available due to the change, which was effective with the publication of the March 31 quarterly statement, showed that Nationwide Mutual Group is the largest underwriter of pet insurance in the US, followed closely by Trupanion.

S&P Global Market Intelligence recently caught up with Trupanion Inc. President Margi Tooth to chat about competition in the pet insurance space, future plans and the impact of artificial intelligence. Tooth, who will add CEO to her title Aug. 1, is enthusiastic about the market in the US and sees a strong pathway for continued growth of the business line.

The following conversation was edited for clarity.

S&P Global Market Intelligence: What has growth looked like for the pet insurance industry and Trupanion over the past several years?

Margi Tooth: This is a tremendously underpenetrated category. If you look at the number of pets and dogs across North America that have insurance, it's less than 4%. So a lot of growth rate ahead there, and a lot of growth has been happening over the last five years. Typically, on average, we've seen the industry growing somewhere between 20% to 30%, and Trupanion has been at the forefront of that growth, certainly for the last couple of years.

What factors contribute to the rapid growth in the industry?

You've got the natural shift in society with more and more people waiting before they have babies. They're choosing to have fur babies instead. A lot of their discretionary income then goes into supporting them, and then when you think about what that means mentally, for a lot of people ... you're preparing for the unexpected. We've seen a shift in the demographic that is adopting pets, with a real recognition of the value that the pet plays in the home.

It really helps to solve a problem for people: they don't know how to budget for the unexpected costs of care. As inflation rises, which it has been doing, it becomes increasingly challenging to budget for it, and a high-quality insurance product gives the solution toward that.

How competitive is the pet insurance space right now?

That's a very topical question. I would say we've competed probably with 25 brands at any given time. And often what happens is they'll come in quickly. Again, it's a really low penetrated market so you expect to see lots of sort of early adopters coming through. We've had lots of competitors over the years, but most of them grow quickly and then realize that it's hard to price appropriately.

We've had one very strong kind of older competitor, the oldest in the market: Nationwide, who recently is sort of changing their structure. And now the most recent is JAB Holding Co. LLC. They've come in and they've purchased most of the brands in the US market.

What we've been looking for is a really good competitor. We need a competitor who's going to do what they say, who's going to price appropriately, who's going to help people understand not all insurance is bad. When you have a low penetrated market, unless you have several good competitors in place, you end up burning some of that market. I'm excited by what we're going to see. I think there's a lot of market to go around.

Nationwide recently announced it is not renewing somewhere around 100,000 pet insurance policies, citing rising inflation in vet care among other factors. Is Trupanion considering a similar move?

When we created the Trupanion product, we wanted to create coverage that would be there for pet parents and their pets throughout their lives. We are proud to have created a policy guaranteeing coverage for life. We stand by this promise, only considering cancellation in the rare instances of nonpayment, fraudulent activity or failure to provide medical records. This provides pet parents with peace of mind, knowing their pets will always be protected.

Are regulators effectively regulating the pet insurance space?

Yeah, regulators are great. There are barriers to entry, honestly, because working with regulators takes time. You've got to get together to make sure that you've got all of the right filings. They're there for the protection of the pet parent, but also, frankly, to help protect us. They are increasingly recognizing the value of pet insurance ... that this is becoming a more meaningful book of business.

The more you get the regulators interested, the more people realize, 'Oh, this is actually a legitimate thing.' Regulators, they're busy; pet is not their top priority. So often, we're sort of competing against your big auto and home insurance providers, but my experience directly with the regulators has been incredibly supportive.

How is AI changing the pet insurance industry?

We started using AI before it was called AI.

We had some folks who came in and understood that you could see patterns and trends that allow us to build what we refer to internally as our claim bots. It's effectively how can we automate processes to help make our lives easier for our pet parents and also for our team members and, frankly, drive operational efficiencies.

Back in 2015, we started using AI as it was not known then, and we've been using it ever since to ensure that we are constantly machine learning. We use it for things like understanding invoices, payment to veterinarians, understanding pricing changes, attribution modeling of pet parents and their behaviors, basically across the board. And there's a lot more to come. As we start to scale up even more the data we have as a business, it allows us to lean more heavily into ensuring that we are focusing on things that pet parents want us to focus on.

Why should investors pay attention to Trupanion?

In a heavily underpenetrated market, we are uniquely positioned as one of the largest — and longest standing — in the market. We are the only player that can pay the vendor directly at the time of checkout, and that's a patented process. And we have incredibly deep data routes that allow us to operate at scale. We do not deploy any capital unless we can see an internal rate of return between 30% and 40%. And we have a great track record historically of delivering on that time and time again.