High-brow pet insurer launches breakaway, “fluff-free,” low-cost product; first of several launches in Trupanion’s 60-month plan

This story was updated on August 4, 2021, at 7:30 p.m. EDT. See below.

America’s second-largest pet insurance provider, Trupanion, Inc. (Nasdaq: TRUP) has launched a “time-limited,” low-cost pet insurance brand in Canada, PHI Direct, which will launch in the United States later this year. PHI Direct is one of two new pet insurance products Trupanion is launching this year. The other, at a medium price point, will be Furkin, also launching first in Canada soon after PHI followed by a U.S. launch. But unless you follow insurance closely or read TCR, you may never know that Trupanion is the parent company.

That’s because the marketing materials omit “Trupanion’s” name, branding, or even its founder and CEO Darryl Rawlings, who started Trupanion 21 years ago while living on a boat in Vancouver, British Columbia. “Eventually, I was able to move off the boat and into an office,” Rawlings explained in the story on Trupanion’s website. The Rawlings legend is also notably absent from PHI’s website.

None of this is to suggest that there is anything nefarious going on at the Seattle-based provider of “medical insurance for pets.” It does, however, highlight a unique challenge for Trupanion, whose leaders have always been quick to seize opportunities to draw distinctions between Trupanion and every other pet insurance brand.

Like Trupanion, PHI Direct is starting out in Canada. A press announcement is scheduled for release today, according to Randy Valpy, who is overseeing both new insurance brands in Canada.  That press announcement is now live.

TCR was provided with a copy of the otherwise-embargoed release and has interviewed company leaders for this story and a related reporting project over the course of the past several months.

“Fluff-Free”

“PHI” is a commonly used acronym in the pet insurance industry for “pet health insurance.” PHI Direct will offer two of what it calls “fluff-free” options: “Direct 5” and “Direct 10”. The “5” signifies an annual maximum payout of $5,000; the “10” signifies a plan offering an annual maximum payout of $10,000. Pet insurance policies with annual, lifetime, or per-incident limits are common. In fact, Trupanion is one of few insurers that only offers unlimited coverage; most insurers try to steer consumers into policies with limitations because, of course, there’s less risk exposure for the insurer.

Insurance regulators slam the “time-limited” policy design of PHI

Beyond the payout ceilings, though, PHI embraces the art of streamlining or “fluff-free” policy design. PHI policies are “time-limited,” meaning anything that happens to a dog that results in a covered claim during one year will not be covered in the following year. Instead, it will be considered pre-existing under the policy terms. In other words, if a dog is diagnosed with cancer in the eleventh month of a policy year, it would be covered during that month, but it would be considered a non-covered pre-existing condition in the following year, even though the policy would be “renewed.”

American insurance regulators representing about two-dozen states who are part of a task force within the National Association of Insurance Commissioners (NAIC) called the Pet Insurance Working Group, whose mission is to draft America’s first pet insurance model law, raised strong objections to legislation that does not block this kind of policy or at least require insurance companies to issue “non-renewals:”  During a virtual meeting on April 29, regulator Michael McKenney of Pennsylvania argued for a proposal to require insurance companies that offer one-year policies to issue a formal notice to consumers that current coverage will not continue.

“I can’t imagine anyone anywhere that could, with a straight face, say, ‘I’ve been covering these claims the last six months. I’m not going to do it anymore, but your policy renewed,’” Mr. McKenney scoffed as he explained why companies should be required to issue “non-renewals.” “So, all that we’re saying,” he continued, referring to his proposal, “is you have to issue a non-renewal to do that.”

Below, an infographic from Trupanion’s new low-cost pet insurance product, PHI Direct. Trupanion’s CEO and branding, though absent from the product’s marketing materials, including its website, has vowed to educate consumers and to make sure that they understand what they’re buying.

Anyone who has spent time at the company’s Seattle headquarters with whom we’ve spoken describes being struck by Trupanion as one of those freakishly unique work environments where people seem happy. What’s not to like? Onsite dog-walking services, childcare, stock options for every employee, paid sabbaticals? Rawlings has noted on more than one occasion that the new insurance products will be marketed independently and apart from Trupanion and that he is determined to have them “swim in separate lanes.” Okay, what about operationally? Will PHI have a Trupanion University (“Tru-U”)? If not, what makes Rawlings think PHI can “cannibalize” the competition, as he vowed in May?

Rawlings says that however inexpensive, the PHI pricing structure will offer “the same value proposition” as Trupanion, meaning that just as Trupanion aims to pay out 71 to 72 percent of the total dollar amount that members spend in premiums over the course of a policy (whereas the industry average is closer to 52 percent), the same standard will apply to the other insurance products. But by targeting 71 to 72 cents of every dollar, Trupanion strives to meet higher standards than any other entity in the market. That’s a plain fact. So how can PHI offer Trupanion’s value proposition without Trupanion, which is so intrinsically tied to its maverick founder, not to mention its patented software?

“We don’t need to say that a family of companies [is paying out 71 or 72 cents on the dollar],” Rawlings told TCR. “We’ll say it individually, by brand.”

Why the total absence of Trupanion as well as the founder’s name from marketing materials? Rawlings had an equally cogent response:

I don’t want consumers to have brand confusion. I don’t want them to think that we’ll be paying the hospitals directly [as Trupanion does]. I don’t want them to think other things. Just from a consumer standpoint, we just want them to be in their own swim lane. So a consumer doesn’t get confused.

However, the irony will not soon be lost on shareholders or veterinarians that Rawlings is launching a less-than-comprehensive insurance product without his name on the press release. Or that the “fluff-free” description promoting the new policy implies that Trupanion’s core product is “fluff.”

Asked to explain his thinking in May when TCR asked him for specifics during a two-hour live Q&A shareholder event for which, we should note, Rawlings and his co-presidents Margaret Tooth and Tricia Plouf bravely answered questions on the fly, he said:

“If you can imagine right now, a consumer searching around,” he said, “they look at 20 different brands. Those other brands are not saying, ‘Oh, by the way, the reason we’re cheaper is because we don’t cover this…’ We will be going to the market and informing and educating them on what is covered. ….Our two new brands will cannibalize the other 19 brands because we will do it in a transparent way…And if it succeeds, great. If it doesn’t succeed, that means that there’s no company in the market that should be able to do it in the long-term sustainable way.”

From the perspective of a Trupanion member, which this reporter is, all of this sounds great. Instead of taking the Petplan trajectory and increasing profit margins (or, at least attempting to do so) by making significant cuts across the board by paying less in claims and offering reduced customer service that would inflict pain on members, why not add more revenue streams if they can do it without any deceptive or unethical business practices?

Trupanion continues to be a great business story about animal health fanatics and 98 to 99 percent monthly retention rates  — the approximate percentage of members who renew their policies each month. In that regard, it’s worth noting that no other pet insurance company to date has provided TCR with its retention rates, and we ask frequently.

However, the irony will not soon be lost on shareholders or veterinarians that Rawlings is launching a less-than-comprehensive insurance product without his name on the press release. Or that the “fluff-free” description promoting the new policy implies that Trupanion’s core product is “fluff.”

Longtime shareholder “happy to see the 60-month plan…”

Questions about whether adding new products is a defensive versus offensive strategy have peppered shareholder events and will inevitably persist as the company powers forward with its ambitious plan.  Asked for his thoughts on the company’s 60-month plan and, specifically, if and why he thought Trupanion was adding low-cost products to its high-brow brand, a longtime shareholder who asked not identified said that for an “outside observer,” a big question might be, “Why are they doing that [launching cheaper pet insurance brands] or why would they do that? Whenever a company tries something new, someone’s out there saying, ‘is this because what they were doing before isn’t working, and this is a defensive thing and they need to do this because the core isn’t working or they see something we don’t see?’”

The shareholder continued by answering the hypothetical:

What I would say is that I don’t think that at all; if you look at the facts, the core business is accelerating. And, also, the company really cares about helping the veterinary community and helping pets…I think it’s just the natural extension of their mission and every great company– every really, really great company–comes out with these things that look like this. So I was so happy to see the 60-month plan.

We would be remiss not to note that the only reason TCR is able to give you all of this information, including the fact that Trupanion is launching a product without Trupanion is that Trupanion, unlike many of its competitors in a typically secretive industry, has given us access to its key players, including Rawlings, as well as to the person overseeing the new insurance products in Canada, Randy Valpy. Valpy, who has been readily accessible, provided us with an unpublished copy of Monday’s press release, which says in part:

PHI Direct’s, new Fluff-free Pet Health Insurance™ launched today in Canada for pet owners looking for introductory coverage for their pet at affordable price points. Designed to be in a class of its own, PHI Direct offers premiums starting as low as $10.19 for cats and $15.20 for dogs.

No more taunting the competition

Trupanion’s website features several videos with Rawlings himself answering “frequently asked questions.” In one particularly memorable “Dishing with Darryl” video, Rawlings addresses pet insurance pricing and makes a cost/benefit analysis argument for Trupanion’s price point by comparing pet insurance companies to cans of tuna. At first blush, the cans might appear similar, Rawlings says, much like how other pet insurance companies that are at lower price points and engage in deceptive practices market themselves as offering what Trupanion offers. Why did we need to describe that video to you from memory rather than simply quote the transcript or link to it? Coincidentally, as this story was going to press, TCR discovered that Rawlings’ epic video taunting cheap pet insurance has been disappeared from Trupanion’s website.

We reached out to Trupanion spokesman Michael Nank and have not heard back. *Update: Nank followed up on August 2: I did check into the canned tuna video (thanks for pointing it out!). Ended up being a technical issue as we migrated our blog posts to a different platform. We are working to get it back online & I will definitely let you know when that happens – should be in the very near future.” Then, on August 4, Nank told us that the important video was back online. Alas, TCR was saddened by the company’s decision not to provide the video with a unique URL. Nonetheless, here is where you can view it, but you will need to do a bit of scrolling.  Since we are unable to link directly to the video or embed it for you here, we took the liberty of screen capturing it (excuse the quality; you may also be able to hear Nellie snoring in the background as her codeine kicks in):

TCR screen-captured this epic “Dishing with Darryl” video in which Trupanion, Inc. CEO and founder Darryl Rawlings compares cheap pet insurance companies to cheap cans of tuna.

Rawlings: There are a few things in life you don’t want to buy the cheapest of. I use sushi as an example. Health insurance for your cat and dog is no different. I often use the analogy that it’s almost like buying a can of tuna. You often see four things that look the same and all you see is the difference in price [camera pans across a table with four cans of tuna on display in front of Rawlings]. If I think about this [close-up: can of “Nimble Bee Discount Tuna”  with $1 price tag] can, you know, it’s a nice can, they have a nice font [lower-third chyron “cheapest insurance product”], this does NOT resemble tuna. The two-dollar can  [close-up: $2 price tag can of “Star Mist Value” can; lower-third chyron “mid-quality insurance”], looking at it, I wouldn’t feed this to my cat. But when I look at [close-up: $3 price tag can of “Tuna Select Solid White Tuna”; lower-third chyron “High-Value Insurance”] what this one is, it looks like real tuna. When you buy a four-dollar can, you don’t even need a can opener. This [points to the one-dollar can “Cheapest Insurance Product”] would be a can that doesn’t cover congenital or hereditary issues. If I use the two-dollar can, it’s a little bit better than Can One. They’re going to have some other limit in coverage. What they do one year may not be the same coverage that you’re going to get the next year. Can Number Four [$4 price tag can of “Premium Tuna”] is like Can One and Can Two but with some extra marketing on top of it. And I would tell you that Can Number Three is Trupanion. It has more weight to it. It covers more. It has the broadest coverage in the industry. And, as you can see from the price, you’re getting the best value. I think I’m gladly going to have a piece of tuna from Can Number Three. Thank you.”

Asked if he would ever consider making a video for the PHI website introducing himself or speaking directly to PHI members, Rawlings replied with an emphatic “NO.”

We’re glad to see that the parent company hasn’t lost its sense of humor and that the tradition of taunting the competition [at lower price points] continues even as Trupanion, Inc. now embarks on the more humble journey into the marketplace of one-dollar tuna cans. 

Correction: This story incorrectly stated that Trupanion reports retention rates by the year. Trupanion reports retention rates by the month and 98-99% is the average monthly retention rate, according to the company’s Q1 2021 earnings report.