The Seattle-based provider of medical insurance for dogs and cats announced the departures of three of its senior officers early Thursday morning, sending the company’s stock down 26.7%.
“Drew Wolff, Chief Financial Officer, will be stepping down from his position effective June 1, 2023. Thereafter, Mr. Wolff will serve as a senior advisor to the Company to support the Interim CFO, and to assist in the search and training of the incoming CFO. Trupanion has initiated an executive search for a new full-time CFO. Tricia Plouf, EVP of Pricing, and Gavin Friedman, EVP of Legal & Regulatory, will be departing the Company, effective immediately,” the announcement said.
The personnel turmoil may, it seems, to be the result of frustration at Trupanion related to efforts to reform the regulatory status of pet insurance, which affects the company’s capital requirements and margins.
“The decision around these three individuals has to do with moving the business forward,” company spokesperson Laura Bainbridge said in an interview with TCR late Thursday afternoon. “Ultimately, this decision being made and when it was made is about improving business performance. To delay or defer something – to have multiple officers exit over a period of time, we felt was going to be more disruptive than making the decision to move these individuals on at once,” Ms. Bainbridge added.
Asked about speculation from analysts that the announcements were a “tip of the iceberg” and indicative of more systemic problems within the company, Ms. Bainbridge would only say, “If there was anything material that we needed to report, we would have to report it.”
Here is what TCR can report as of Sunday evening, March 26:
1. In his 2022 Shareholder Letter, released just over one week earlier, Mr. Rawlings concluded that he was “disappointed” in the 2022 results.
2. Gavin Friedman, Trupanion’s General Counsel and Chief People Officer, whose title changed at some point to “EVP Legal & Regulatory,” joined the company in 2016 from AIG, before which he was an attorney for Morrison & Foerster (aka “MoFo”), one of the country’s preeminent firms. Mr. Friedman relocated from Los Angeles to Seattle when he joined Trupanion in 2016, according to the company’s website.
3. In November 2022, Trupanion CEO Darryl Rawlings told TCR in an interview that pet insurance “is very close to getting its own line,” meaning it would be its own category of insurance, replacing its current status as a subcategory of “inland marine” insurance, which requires unrealistic capital reserves to protect against the catastrophic losses that conventional casualty insurers are requires to reserve for. He added: “I don’t have all the details on exactly what happened when, but I believe it’s very, very close. It may then need to get adopted by individual states or something like that.” However, when TCR asked the consumer liaison with the national association of insurance commissioners (NAIC), Birny Birnbaum, and several regulators, if they were aware of what Rawlings had communicated, Mr. Birnbaum said, “I don’t see a proposal on that page yet for a separate line of business for pet.” Matthew Gendron of Rhode Island also said he was not aware of any such movement towards pet insurance getting its own line.
4. The Canine Review followed up regularly with Trupanion, including with Mr. Friedman on the matter of pet insurance getting its own category. But he declined further comment. Trupanion spokesman Michael Nank also declined comment repeatedly on Mr. Friedman’s behalf.
5. Trupanion released its fourth quarter financial results and annual report in February. Trupanion reported that growth in the company’s Other Business segment, which is how the company classifies “revenue from other product offerings that generally have a business-to-business relationship…,” meaning underwriting as opposed to public-facing administrative and marketing, was projected “to slow in 2023 as our partner [Pets Best] transitions to an additional underwriter for their new book of business. We currently expect growth in this segment to approximate 10% in 2023, but keep in mind that timing may shift.”
“The cost of capital has become more expensive,” Trupanion founder and CEO Darryl Rawlings explained the day following the company’s earnings report at a conference hosted by Bank of America. “[T]he Pets Best business has the same capital requirements as Trupanion. That business has about a two to three percent margin,” Rawlings further explained about Pets Best. “And we’re targeting a 15 [percent margin] for Trupanion.”
6. Trupanion, including Mr. Friedman and Mr. Rawlings, continued to decline to discuss regulatory matters. But: What made Mr. Rawlings believe a dedicated category was imminent when he made the comments in November to TCR?
If NAPHIA and Mr. Friedman had, indeed, been able to get the category its own line by this point, would Trupanion have had to offload Pets Best?
Currently, unlike human health insurance products, pet insurers are held to the same capital reserve requirements as other property and casualty insurers because they need to be able to sustain catastrophic losses, e.g., natural disasters. Rawlings explained that Trupanion has higher margins than Pets Best, which means that it would be required to keep much more capital, proportionately, in reserve for Pets Best than it would for its own insurance. And with interest rates no higher than in the recent past, that is apparently a burden Trupanion does not want to absorb.
7. Maine Pet Insurance Law: A Harbinger?
Capital reserve requirements for “inland marine” isn’t the only regulatory matter causing major headaches for Trupanion.
In Maine, where new state legislation is now active which bans waiting periods longer than 24 hours, only Trupanion is now enrolling new members. Other carriers have stopped offering new policies. And, because Trupanion now requires new members to visit the vet within 24 hours of enrollment in order to address what the industry refers to as “adverse selection” in Maine in the 24-hour window before conditions must be eligible for coverage, Trupanion is having significant problems with its enrollment numbers in the state.
Despite repeated requests for comment from TCR to the trade group, Trupanion, and other carriers about how the pet insurance industry is addressing Maine and making sure Maine doesn’t happen in more states, all industry representatives have repeatedly declined to discuss the situation in Maine.
8. There is pet insurance legislation pending in New York which the NAPHIA and Trupanion have all declined to discuss, even though the legislation would effectively cripple the entire category by requiring coverage of pre-existing conditions. Indeed, this legislation would appear to represent an extinction-level event for the industry, yet only the lawmakers will comment. And the state senator sponsoring this bill told TCR through his spokesperson that they have had absolutely no resistance to it as far as lobbying challenges.
Could this be why Mr. Friedman was axed?
We can only guess, because, unfortunately, the company’s leaders continue to evade TCR’s requests to discuss regulatory issues. In fact, Mr. Rawlings has evaded our requests for comment for nearly six months, as has the company’s President, Margi Tooth.