Trupanion, Chewy, & Pet Insurance Growth Opportunities

We’ve long been curious about Trupanion: it’s a pet insurance business that reports subscription revenue and LTV data rather than gross written premiums or losses. Although we’ve found it difficult to get comfortable with TRUP’s economics, it’s clear the market is growing rapidly:

Source: NAIC
Source: NAIC
Source: NAIC
Source: NAIC

In the 2021 shareholder letter, TRUP CEO implied the lack of operating profitability during its growth phase is due to heavy reinvestments into growth i.e. pet acquisition growth. The spend to acquire new policies is steadily increasing and is TRUP's largest operating expense:

Source: TRUP
Source: TRUP

This interview with a Former TRUP and Chewy VP shares interesting insights into TRUP’s growth opportunity.

Firstly, pet insurance penetration is still low:

The US pet insurance market is different to the UK as it is low penetrated. We believe 2% to 3% of US pets are insured – less than 1% of cats and 3% percent of dogs – whereas it is over 20% in several European countries, so it is seen as a tremendous opportunity. - Former TRUP and CHWY VP

Secondly, there are opportunities to explain the offering more succinctly to customers:

The second big finding was people didn't know the cost of veterinary care until they encountered a big problem. That was especially true during the pandemic, where millions of pets were adopted and people got bills of $5,000 to $10,000, but people don't think about it that way. There is also the complexity of choosing the insurance, am I better off spending $100 per month for years until something happens, or do I put the money aside. - Former TRUP and CHWY VP

And thirdly, and more interestingly in light of Chewy’s recent new relationship with Lemonade, TRUP’s opportunity to leverage Chewy’s customer base could be material:

Chewy knows the breed and age of the animal and, because they have a pharmacy, they know which animal have conditions…Even if you eliminate two thirds of your audience and end up marketing to six or seven million and get 1%, that's 60,000 to 70,000 people a year which is substantial. 1% to 2% of your targeted population was my secret number when I was there. - Former TRUP and CHWY VP

This executive estimates TRUP could add ~70k policies from the Chewy relationship and explores the broader growth opportunity in more detail.

One last comment: JAB recently purchased Fairfax's pet insurance business. Prem knows insurance pretty well: why did he sell if this is a good business?

Zoetis, BI, Elanco & Animal Pharma Competition

This interview with a 30-year animal health veteran explores the pricing and competitive landscape of the big 4 animal pharma companies:

Let’s touch on big box retailers first. I think one of the challenges there is on price, but the opportunity is around private label products, as well as maybe co-marketing type relationships whereby you can almost shift some of your marketing to that partner with the private label. In private label, what I'm thinking of there are products that are manufactured using the same formulation, but that are labelled for the specific big box retailer. If we think of a Banfield-type of retailer, they may have private label branded products that fit specifically for their brand and their store. Oftentimes, you'll offer that with a price concession along with it, so if there is a Next Guard type product that is private labelled for that business, then potentially you would give up some price for that product, but the opportunity there is that you have a more of an exclusive relationship with them, and there's a motivation for Banfield or a big box retailer to market that product, as well.

AddLife: Healthcare 21 Acquisition

This interview explores AddLife's recent HC21 acquisition:

in Ireland only the HC 21 name exists today. In the UK, they still work under both and it's Aquilant, a Healthcare 21 division. There was a lot of value in the Aquilant name, particularly in the high value interventional areas, so they decided to keep that name rather than confusing the marketplace by changing it again. Those businesses were fairly separate, but ran them all as individual business units anyway. The work didn't come together until you got to a high-level manager. That structure was “reasonably easy” and is still in place today, where the businesses run under that model of a standalone business with a manager reporting into a new general manager.

Essensys & Commercial Real Estate Software: Customer Perspective

Essensys is a UK-listed microcap that sells software to flexible coworking spaces and is trading close to net cash…

This interview is with a Former Essensys customer:

When I was going through this with Essensys, I went to look at the software. I went with my IT guy, I said, we're going to sit down and write a list of what we’d like and what we won’t sacrifice. We created a spreadsheet of what we needed to do. We decided to start from scratch, WUND were out of the picture, and we revisited everybody. I was leaning more towards going with Satellite Deskworks. It's a company in California, they own a few coworking locations. I clicked with the founder. We looked at the company, and my IT guy didn’t like the interface, he thought it looked old. He suggested OfficeRnD. I flew to Sofia to meet with the CEO, and I looked into investing into that company at that time. I liked what they wanted to do, and my IT guy convinced me, so we ended up going with them. We installed Meraki from Cisco. It’s important to note that most of my coworking peers are going into Meraki. Within the LExC Network, at least, I don't know anyone who still uses Essensys. Most of them have gone to Yardi, some have gone to OfficeRnD.

Advanced Drainage Systems: Operational Overview

Advanced Drainage Systems is the largest recycler in the United States. With recycled resins constituting almost 50% of its material purchases, this former executive believes investing in its recycling capacity can deliver meaningful material cost savings:

I estimate the benefits of non-virgin could amount to a 10% material cost savings. Other manufacturing costs include labor, electricity and extrusion equipment, but material is the dominant cost. There is a significant economic factor in backward integration, but the quality and supply control also helps.

Hagerty International: UK Classic Car Insurance

An executive with over 15 years experience at HGTY UK explores the collectors car insurance market opportunity for Hagerty:

The US has four or five players in the classic car industry whereas the UK has four or five players in a 10-mile radius. We also have comparison websites who invest a huge amount of money attracting business into the books. The most recent stat I heard was that 89% of anyone who buys a car insurance product in the UK has initially received a quote through one of the aggregators. That includes classics, modern and trailers. The UK market is busy – and that two million market cap extends every year – as people are desperate to get this type of business. It's a loss leader into getting home and contents.