Trupanion: Pricing Challenges

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Could you clarify what you mean by "problematic" and who is subsidizing whom in the Trupanion model?

In Trupanion's model, the younger ages are subsidizing the older ages more. For instance, pets are generally healthy until age three or four. Then you start seeing health problems. In a model where you lock in at age zero, you still need to pay a slightly higher premium than other companies because your age zero factor is going to cover the lifetime of the policy.

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This is an interesting strategy that Trupanion has adopted because it's very different from what anyone else does in the market. What benefit is there for them in doing this? It seems almost like they are shooting themselves in the foot.

In my personal opinion, Trupanion behaves somewhat like a bully in the market, akin to a high school bully. They frequently criticize other insurance companies. They claim that other insurance carriers change their rates every year, which we don't, but they do as well. They adjust their external factors every year or two and increase their base rate. Consequently, customers still see a higher premium in a year or two. It's just a different approach to pricing than what they have. However, they are quite expensive. One reason for their high prices, which is problematic for them, is that they have to start at a high rate to subsidize all the losses for the lifetime of the pet. Many carriers start at a low rate and can attract more younger, healthier pets because it's cheaper. These younger pets help subsidize the losses for older pets. The younger your book of business, the better for your overall loss ratio. Trupanion's problem is that they can't attract as many younger pets because their starting price is high.

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