What changed in this filing

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Item 1. Business

2024-02-27 compared with 2023-02-16 · 97 added, 70 removed, 159 unchanged (51% of the section changed)

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Company Overview

We provide medical insurance for cats and dogs throughout the United States, Canada, Europe, Puerto Rico, and Australia.

We provide medical insurance for cats and dogs in the United States, Canada, Continental Europe, and Australia.

Through our data-driven, vertically-integrated approach, we develop and offer high value medical insurance products, priced specifically for each pet’s unique characteristics and coverage level.

Our growing and loyal membership base provides us with highly predictable and recurring revenue.

We operate in two business segments:

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We operate our subscription business segment similar to other subscription-based businesses, with a focus on achieving a target margin prior to our pet acquisition expense and acquiring as many pets as possible at our targeted average estimated internal rate of return.

Our other business segment is comprised of revenue from other product offerings that generally have a business-to-business relationship and different margin profiles than our subscription segment, including revenue from writing policies on behalf of third parties and revenue from other products and software solutions.

Within our subscription business, we also provide "Powered by Trupanion" pet insurance product offerings marketed by third parties and, in Canada, low and medium average revenue per unit (ARPU) products marketed under the brand names Furkin and PHI Direct.

We provide a full suite of services and support for these products and they are designed to align with the target margin profile of our subscription business segment.

Within our subscription business segment we also offer products in Continental Europe, which are currently underwritten using third-party underwriters.

Our other business segment is comprised of revenue from other product offerings with third parties with whom we generally have a business-to-business relationship.

This business segment has a different margin profile than our subscription segment and includes revenue from writing policies on behalf of third parties and revenue from other products and insurance software solutions.

It is very difficult for pet owners to budget for veterinary expenses when their pets become sick or injured.

Pet owners do not know whether their pet’s health will be “average,” “lucky,” or “unlucky.” Over the life of a pet, veterinary expense for a lucky vs.

unlucky pet can vary from $500 to more than $50,000.

Even if a pet ends up being “average” over its life, the timing of accidents or illnesses may not align with the owner’s budgeting approach.

Pet owners do not know whether their pet’s health will be “average,” “lucky,” or “unlucky.” Over the life of a pet, veterinary expense for a lucky versus unlucky pet can vary from $500 to more than $50,000.

Even if a pet ends up being “average” over its life, the timing of accidents or illnesses may not align with the pet owner’s budget.

Further, many pet owners do not know how to budget for the “average” cost of medical care for their pets.

Average veterinary expenses often greatly exceed the expectations of the pet owner and vary dramatically based on a multitude of factors, including the availability of care by region and the types of treatments advisable for specific pet breeds.

Consequently, self-insuring is not an effective solution for many individual pet owners.

Average veterinary expenses often greatly exceed the expectations of pet owners and vary dramatically based on a multitude of factors, including the availability of care by region and the types of treatments advisable for specific pet breeds.

Consequently, self-insuring is not an effective solution for many pet owners as the cost of pet medical care has been outpacing inflation for over 20 years due to advancements in medical procedures and technology and due to increased availability of high-quality care.

Our monthly subscription products, priced specifically for each pet’s unique characteristics and coverage level, help pet owners budget for unforeseen medical expenses.

Through our high quality medical insurance products, pet owners are able to ensure the best care for their pet, and avoid decisions being made due to financial constraints.

Our monthly subscription business model provides us with high quality predictable and recurring revenue.

Our subscription business’s cost-plus model is designed to spread the risk evenly within each category of pets so our members can budget for unexpected veterinary costs.

Through our high quality medical insurance products, pet owners are able to ensure coverage for the best care for their pet and avoid decisions being made due to financial constraints.

Our monthly subscription business model also provides us with high quality predictable and recurring revenue.

Our subscription business’s cost-plus model is designed to spread the risk evenly within categories of pets so our members can better budget for unexpected veterinary costs.

We have been collecting comprehensive pet health data for over 20 years.

We believe our data and approach to pricing is unmatched and provides us with a greater understanding of anticipated veterinary costs.

We believe our data and approach to pricing is unmatched by other pet insurers and provides us with a greater understanding of anticipated veterinary costs.

We leverage this to price our subscription plan for each pet based on their specific circumstances such as breed, age (at enrollment), geography, desired deductible or co-payment and coverage level, so that, in aggregate, the amounts paid by owners of lucky pets helps to cover the veterinary costs incurred by unlucky pets.

We believe our actuarial team, working with our granular data, is able to price our subscription plan much more accurately than other players in the industry, enabling us to provide our members with the highest value proposition relative to coverage level.

We believe our actuarial team, working with our granular data, is able to price our subscription plan much more accurately than any other players in the pet health insurance industry, enabling us to provide our members with the most accurate cost and highest value proposition relative to coverage level.

Our core “Trupanion” product was designed by veterinarians to enable them to practice the best medicine – thus recommending the optimal treatment for the pet.

As a result, we believe our Trupanion product enables veterinarians to establish stronger ties and better alignment with their clients.

Trupanion members tend to visit their veterinarian more frequently and spend more money on the best course of treatment for their pet.

As a result, we believe our Trupanion-branded products enable veterinarians to establish stronger ties and better alignment with their clients.

Members with a Trupanion-branded product visit their veterinarian more frequently and spend more money on the best course of treatment for their pet.

This results in better health outcomes for pets, which we believe creates a flywheel effect that has been the key driver of growth for our subscription business.

Through the use of our proprietary, patented software designed to communicate directly with a veterinary hospital’s practice management software, we are able to offer a differentiated experience to pet owners.

Using our software, veterinary hospitals can receive payment from us directly for approved invoices in seconds, with their clients (our members) only paying their deductible or co-payment of covered treatments.

We believe this unique solution, which is offered free to veterinarians and pet owners, transforms the insurance experience.

Our other business segment is comprised of other product offerings that generally have a business-to-business relationship and different margin profiles than our subscription segment.

These include providing pet insurance policies on behalf of the Veteran Affairs program, employer sponsored programs, and underwriting policies on behalf of third parties that do not carry reference to the Trupanion brand.

Additionally, our other business segment includes the sale of software solutions.

Through the use of our proprietary, patented software designed to communicate directly with a veterinary hospital’s practice management system, we are able to offer a differentiated experience to pet owners.

We believe this unique and patented solution, which is offered free to veterinarians and pet owners, transforms the insurance experience.

Through our "Powered by Trupanion" suite of products, which are marketed by third parties, we are broadening our distribution in the retail and corporate worksite channels.

Our "Powered by Trupanion" products offer the same differentiated experience Trupanion pet owners receive but with options for varying levels of coverage to meet budgetary requirements.

Our Furkin and PHI Direct products are currently distributed direct-to-consumer in Canada.

Our other business segment is comprised of other product offerings with third parties with whom we generally have a business-to-business relationship, and this business segment has a different margin profile than our subscription segment.

Products in this segment include providing pet medical insurance policies on behalf of the U.S.

Department of Veterans Affairs program, employer sponsored programs, and underwriting policies on behalf of third parties that do not carry reference to the Trupanion brand.

Additionally, our other business segment includes the sale of insurance software solutions.

Our target markets are large and under-penetrated, as measured by insured pets:

North America 1

Continental Europe Australia

Continental Europe 2

Household dogs and cats (in thousands) 210,000 160,750 8,900

Market penetration 2.0 % 5.6 % 11.2 %

1 According to Insurance Information Institute and Canadian Animal Health Institute, there are approximately 200 million household dogs and cats in the United States and Canada.

North American Pet Health Insurance Association estimates that the penetration rate for medical insurance for cats and dogs in North America is approximately one to two percent.

Pet insurance market penetration 3.0 % 8.4 % 9.0 %

1 According to IBIS World and Canadian Animal Health Institute, there are approximately 210 million household dogs and cats in the United States and Canada.

North American Pet Health Insurance Association estimates that the penetration rate for medical insurance for cats and dogs in North America is approximately three percent.

We believe that over the long-term, the North American penetration rate can reach levels comparable to the U.K., where, according to Global Market Insights, approximately one in four cats and dogs has medical insurance.

2 According to FEDIAF European Facts & Figures, GfK Czech consumer panel, and KVL Czech Republic, there are approximately 161 million household dogs and cats in Continental Europe.

The estimated penetration rate for medical insurance for cats and dogs is approximately eight and a half percent.

3 According to PetKeen, there are approximately 8.9 million household dogs and cats in the Australia.

The estimated penetration rate for medical insurance for cats and dogs is approximately nine percent.

Our total enrolled pets grew from 31,207 pets on January 1, 2010 to 1,714,473 pets on December 31, 2023, which represents a compound annual growth rate of 33%.

As a result, our revenue has grown from $19.1 million in 2010 to $905.2 million in 2022.

As a result, our revenue has grown from $19.1 million in 2010 to $1,108.6 million in 2023 which represents a compound annual growth rate of 34%.

We are focused on attracting and retaining members by providing a best-in-class value and member experience.

In particular, we are focused on the following:

Increasing the leads from veterinary hospitals.

We intend to increase the number of veterinary hospitals that help their clients learn about high quality medical insurance, and to increase the rate at which active veterinary hospitals refer leads to us by leveraging our Territory Partners.

Increasing the number of referrals from members.

In particular, we concentrate on the following:

Increasing leads from veterinary hospitals.

Increasing referrals from members.

We seek to grow the number of existing members that add a pet or refer their friends and family to Trupanion.

We do so by focusing on improving the member experience, including increasing the percentage of veterinary invoices that are processed rapidly at checkout and paid directly to veterinarians through our patented, proprietary software.

We do so by focusing on improving the member experience, including increasing the percentage of veterinary invoices that are paid directly to veterinarians through our patented, proprietary software.

Improving conversion.

We are investing to increase the rate at which we convert pet owners receiving quotes for our subscription plan into enrolled members.

Improving retention, particularly in the first year of enrollment.

Targeting a 71% value proposition.

We aim to return to our members 71% of premiums we collect in the aggregate, which we believe is the highest targeted value proposition in our industry.

Our ability to target the highest sustainable value proposition stems from our low cost operating model.

Achieving our targeted value proposition requires we grow our ARPU in-line with the cost of veterinary care.

Improving retention.

Member retention is a key part of our strategy.

Historically, members in their first year of membership have the lowest retention rate.

We are investing in the education process and improving initial customer communication and experiences in order to increase our retention rates.

Automating the payment of veterinary invoices.

We use artificial intelligence and machine learning to leverage data so we can automate the payment of veterinary invoices.

We intend to increase the percentage of veterinary invoices paid without human intervention with the goal of ensuring that we can process veterinary invoices in seconds and do so without reducing the quality of our decision making on a case-by-case basis.

Growing additional member acquisition channels.

We are investing in the education process for our members and improving initial member communication and experiences in order to increase our retention rates.

Automating payment of veterinary invoices.

We use artificial intelligence and machine learning to leverage data to automate the payment of a portion of our veterinary invoices.

We intend to increase the percentage of veterinary invoices paid without human intervention with the goal of ensuring that we can process veterinary invoices in seconds, at a lower cost and without reducing the quality of service.

Expanding additional member acquisition channels.

We are growing new member acquisition channels including employee benefits, point-of-sale, retail and direct-to-consumer, for the sale of our pet medical insurance products.

We also intend to pursue new channels that we believe could, over time, deliver our desired return on investment.

We also continue to pursue new channels that we believe could, over time, deliver our desired return on investment.

Aligning with strategic partners.

We seek partnerships with players who are leaders in their field, have long-term alignment, and recognize the value of our brand and expertise.

We maintain relationships with players who are leaders in their field, have long-term alignment, and recognize the value of our brand and expertise.

These companies generally have well-developed distribution channels but do not have our expertise in pet medical insurance.

Expanding internationally.

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Expanding our product offering.

We intend to introduce additional monthly subscription products, maintaining what we believe to be the highest value pet medical insurance, but with varying levels of coverage.

Pursuing other non-insurance revenue offerings.

We have introduced additional monthly subscription products, maintaining what we believe to be the highest value pet medical insurance, but with reduced coverage that is less expensive.

Pursuing non-insurance revenue offerings.

We intend to continue pursuing opportunities to provide pet owners with complementary products and services.

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We build awareness of our core Trupanion product predominately through the veterinary community, engaging our team of “Territory Partners." Our Territory Partners are independent contractors who market our product and are paid fees based on activity in their regions.

Their role is to create meaningful, long-term relationships with veterinarians and to educate those veterinarians about the benefits of high quality medical insurance.

Their role is to create meaningful, long-term relationships with veterinarians and to educate those veterinarians about the benefits of high quality medical insurance for pets.

We believe this structure aligns our interests and provides a platform that we can leverage over time.

Our Territory Partner approach is unique and unmatched in our industry.

We believe that it would be extremely difficult, costly and time consuming for a competitor to replicate.

We compete primarily with pet owners who choose to self-fund their veterinary costs, mainly via credit cards, as well as new and existing pet insurance brands.

We believe that it would be extremely difficult, costly and time consuming for a competitor to replicate this model.

We compete primarily with pet owners who choose to self-fund their veterinary costs, mainly via credit cards, as well as new and existing pet medical insurance brands.

We view our primary competitive challenge as educating pet owners on why high-quality medical insurance for pets is a better alternative to self-insuring.

The vast majority of pet owners in the markets in which we operate do not currently have medical insurance for their pets and there is very little movement from one insurance company to another due to pre-existing conditions.

The vast majority of pet owners in the markets in which we operate do not currently have medical insurance for their pets and those that do have medical insurance for their pets do not typically move from one insurance company to another because pre-existing conditions would likely not be covered following a move.

As a result, we are focused primarily on expanding the overall size of our markets by providing pet owners with high value, transparent medical coverage designed for each pet's unique characteristics and coverage level.

We have been competing against at least 20 brands at any given time in our operating history.

In our experience, competing pet insurance companies generally fall into one of two segments:

(a) traditional providers with low target price points and narrow coverage that is unlikely to cover things most likely to go wrong, like congenital and hereditary conditions, and (b) higher-value providers that provide some form of an annual plan designed to increase the cost of the plan as the pet ages.

We believe that we have competitive advantages that position us favorably.

We have been competing against numerous brands at any given time in our operating history.

In our experience, competing pet medical insurance companies generally fall into one of two segments:

(a) traditional providers with low target price points and narrow coverage that is unlikely to cover things most likely to go wrong, like congenital and hereditary conditions, and (b) higher-value providers that offer some form of an annual plan designed to increase the cost of the plan as the pet ages.

In recent years, there has been significant consolidation in the pet medical insurance industry resulting in many brands being controlled by a small number of companies.

We believe that we have competitive advantages that position our product offering favorably compared to other brands offered in the marketplace.

These include:

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We seek to protect our proprietary position by filing patent applications in the United States and in jurisdictions outside of the United States related to our technology, inventions, and improvements that are important to our business.

We hold two U.S.

We hold six U.S.

utility patents and one U.S.

design patent related to our proprietary software, and we have multiple additional patent applications pending in the United States and in other jurisdictions.

design patent related to our proprietary software, and we have multiple additional patent applications pending in the United States.

We also have three issued utility patents and two issued design patents in other jurisdictions, as well as multiple additional patent applications pending.

We additionally rely on data and market exclusivity, and patent term extensions when available.

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We also contract with team members in the Philippines through a third-party service provider, and we operate in Australia through a joint venture.

Our team is increasingly global with team members working in our Seattle headquarters in the United States, in the U.K.

office, and virtually across the U.S., Canada, and Europe.

Our Seattle headquarters office is pet friendly.

We offer each team member the same benefits, regardless of role or level in the organization.

Our team is increasingly global with team members working in our Seattle headquarters in the United States, in our offices in the U.K., Germany, and Czechia, and virtually across the U.S., Canada, and Europe.

Our Seattle headquarters is pet friendly.

We offer each team member substantially the same benefits, regardless of role or level in the organization (with appropriate variations due to the country in which they reside).

We also recognize the importance of family and design our benefits plans to support the physical, financial, and emotional wellbeing of team members and their families.

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• Severance and Change in Control Policy – We have a Severance and Change in Control policy that applies equally to all team members, regardless of their role at Trupanion.

Diversity, Equity, Inclusion, and Belonging

We believe that diversity, equity, inclusion, and belonging (DEIB) is critical to supporting our fellow team members and enhancing our ability to fulfill our mission and achieve our goals.

Diversity, Equity, and Inclusion

We believe that diversity, equity, and inclusion (DEI) is critical to supporting our fellow team members and enhancing our ability to fulfill our mission and achieve our goals.

We strive to foster an environment where diversity of people with different perspectives and backgrounds can thrive.

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We have multiple employee-led resource groups that celebrate aspects of our team’s diversity and help foster a welcoming and safe space for support, education, professional development, and networking.

Our DEI Committee is also employee-led and focuses on cultivating a culture of inclusion and belonging by supporting DEI activities, fostering effective DEI communications with Trupanion employees and advising on ways to improve progress in Trupanion's commitment to DEI.

We have also developed a DEI curriculum that is required for all team members, and we continue to develop accessibility enhancements to both our physical and digital spaces.

We have a large representation of women at Trupanion including 61% of leadership positions.

As part of our strategic plan, we have also set a goal to increase the representation of underrepresented groups on our teams beginning with underrepresented races and ethnicities.

To achieve this goal we are taking specific actions to hire, retain, and develop people from underrepresented groups, and further a culture of inclusion at Trupanion.

For example, among other steps we have taken, we have expanded the number of employee resource groups, developed a DEIB curriculum that is required for all team members, continue to develop accessibility enhancements to both our physical and digital spaces, and set department-level representation goals linked to compensation.

Our culture of inclusion at Trupanion is in part reflected by, in 2023, 39% of our US new hires self-identifying that they are from an underrepresented group.

Trupanion is committed to paying equitably for equal work, regardless of gender or race/ethnicity, and conducts pay equity analyses as part of our efforts in furtherance of this commitment.

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At Trupanion we are committed to helping everyone grow and thrive along with the company.

We are proud to continually see about 23% of our team members transition to new roles within Trupanion each year.

We are proud to continually see approximately 15% of our team members transitioning to new roles within Trupanion each year.

Team members have access to ongoing development designed to help them succeed in their roles today, develop skills for the future, and build a career at Trupanion.

A sampling of our development opportunities include:

• TruUniversity (TruU) – All team members participate in TruU company orientation to learn about our history, culture, product, business model, and operations.

• Trupanion Embark!

– All team members participate in company orientation to learn about our history, culture, product, business model, and operations.

• Mentorship – Our TruMentor program creates connection across departments, so team members can learn from and support each other in their development.

• Professional skills – Our continuing education course catalogue includes a wide variety of topics related to our business, the animal health industry, and professional skills.

• Leadership Development – Our Leadership Unleashed curriculum offers specific leadership development programs both for new managers leading for the first time and for more experienced leaders leading teams of other leaders.

We prioritize the safety of all members of our team.

For example, when the COVID-19 pandemic emerged, we were one of the first Seattle-area public companies to transition to fully virtual work, doing so before it was required.

Since then we have kept our culture alive with more frequent all hands meetings and office hours with leadership, and converted many of our office events, like the annual Pet Pageant, to virtual formats.

Since June 2021, we have offered hybrid work arrangements.

We also offer complimentary COVID testing available 24/7 at our Seattle office for team members and their loved ones.

• Leadership Development – Our Leadership Unleashed program offers development for aspiring, new and experienced managers to drive ownership and growth for the future of our business.

For further information, refer to the Regulation section included in Part II Item 7 of this report.

United States Regulations

federal law and the laws and regulations of each United States state, territory and possession apply to companies licensed to transact insurance business in these jurisdictions.

While our insurance subsidiary and underwriter, American Pet Insurance Company (APIC), is domiciled in New York State and its primary regulator is, therefore, the New York Department of Financial Services (NY DFS), APIC is also currently licensed to do business in all 50 states, Puerto Rico and the District of Columbia.

Our primary insurance subsidiary and underwriter, American Pet Insurance Company (APIC), is domiciled in New York State and the New York Department of Financial Services (NY DFS) serves as its primary regulator.

APIC is currently licensed to do business in all 50 states, Puerto Rico and the District of Columbia.

As such, APIC is also subject to comprehensive regulation and supervision under laws and regulations of each U.S.

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In 2021, we established two new wholly-owned insurance subsidiaries, ZPIC Insurance Company (ZPIC) and QPIC Insurance Company (QPIC), domiciled in Missouri and Nebraska, respectively.

We have funded required statutory capital to these new subsidiaries, however, neither subsidiary has begun underwriting insurance policies.

ZPIC is currently licensed to do business in 41 states and the District of Colombia.

QPIC is currently licensed to do business in 30 states and the District of Colombia.

We have funded required statutory capital to these new subsidiaries, however, neither subsidiary has begun underwriting insurance policies as of December 31, 2023.

federal law generally does not directly regulate the insurance industry.

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Among the proposals that have in the past been, or are at present may be under consideration, are the possible introduction of federal regulation in addition to, or in lieu of, the current system of state regulation of insurers.

In August 2022, members of the National Association of Insurance Commissioners (NAIC) passed a pet insurance model act to establish appropriate regulatory standards for the pet insurance industry.

It standardizes how insurers enforce waiting periods, certain policy conditions, and the sale of pet insurance in general.

Since then, 7 states (DE, LA, ME, MS, NE, NH, and WA) have adopted the model act, some with slight variances, and 10 additional states (CA, DC, FL, MD, NY, NJ, OH, PA, RI, and VT) have draft legislation in progress for 2024.

Trupanion is proactively engaged in the drafting and passage of the pet insurance law in these states through the North American Pet Health Insurance Association (NAPHIA).

In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) established a Federal Insurance Office within the U.S.

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insurance companies.

As of December 31, 2022, APIC had three IRIS ratios outside the usual range, relating to net premiums written to surplus, change in adjusted policyholders’ surplus, and investment yield.

As of December 31, 2023, APIC had one IRIS ratios outside the usual range relating to net premiums written to surplus.

While a ratio outside the usual range is not considered a failing result, regulators may investigate or monitor an insurance company if its IRIS ratios fall outside the prescribed usual range .

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Under the terms of our agreements with Omega, we retain any financial risk associated with our Canadian business.

In October 2023, Omega was acquired by Accelerant.

Omega’s Canadian insurance operations are supervised and regulated by Canadian federal, provincial and territorial governments and Omega is a fully licensed insurer in all of the Canadian provinces and territories in which we do business.

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As of December 31, 2023, the account held CAD $15.7 million.

In 2022, we incorporated a new wholly-owned insurance subsidiary, GPIC Insurance Company (GPIC), domiciled in Canada.

GPIC is currently licensed to do business in all provinces and territories in Canada except for Nunavut.

We have funded required statutory capital to this new subsidiary;

however, GPIC has not begun underwriting insurance policies as of December 31, 2023.

We have a segregated cell business called Wyndham Segregated Account AX (WICL), located in Bermuda.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business