Author Topic: TRUP - Trupanion  (Read 9641 times)

muscleman

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Re: TRUP - Trupanion
« Reply #20 on: July 06, 2017, 07:50:53 AM »
Screw pet insurance.


But you guys already knew that.

 8)

Lawl

Muscleman, how come you like IHC better? I see they are also involved in other insurance lines of business

IHC has cheap valuation and profitable. TRUP is just another hype. Good luck buying an insurer at 14x book value.
Book value not always a good determinant of value for an insurer. I own a little Admiral Group (UK insurer) and it has as similar high price to book. They focus on quality underwriting and low costs and cede premiums to reinsurers, giving up the float an investment income. I am not familiar with TRUP - so it may be a similar case and hence not as well understood?

Regulators require a max leverage of 3x-8x of book, depending on the line of business. The book value limits the max profits the insurer may make.


mrholty

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Re: TRUP - Trupanion
« Reply #21 on: July 06, 2017, 09:08:07 AM »
Travis-

The 8-10% you mention is normal in the insurance space in general if a little high depending on exactly what they do vs Pet's best but its certainly closer than 18-20% for other insurance businesses.

vinod1

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Re: TRUP - Trupanion
« Reply #22 on: July 10, 2017, 05:13:28 AM »
This is a very interesting find, one with potentially long runaway for growth. My concerns are:

Weak Customer Value Proposition

1.   The company targets a medical loss ratio (MLR) of 70%, which means it pays out 70% of what it collects from its customers back to them. Most other companies are in the 50% range. Even with a 70% MLR, it means customer costs are 40% higher compared to those who are self-insured. So customers should be willing to pay 40% more just for smoothing out their vet expenses.

2.   There are often very large discounts on medical expenses for humans when they go through a health plan because the managed care company has large scale which allows it to negotiate lower prices for various treatments. These discounts are often in the 50% range. There are no such discounts at vets because they do not mark up the costs. So there are no additional cost savings for going through insurance. This is unlikely to change as no insurance company has enough scale to demand discounts and the prices the vets charge are already low with little room for any discounts. Further, vets would not want to change the existing model, given all the downsides they see with health plans.

3.   Even the most expensive treatments are surprisingly affordable. Even for all the treatments that cost above $1000, the 10 most common are still in the $2000 to $3000 range. There are some treatments where the costs run into the $20,000 to $40,000 range. But in this case owners have the choice of "economic euthanasia".

Thus the company does not seem to have a strong value proposition for customers and it is unlikely that it would be widely adopted by pet owners. This would limit the company's total addressable market to a smaller fraction of the potential market than what an investor might hope for.

If the company can increase its MLR target to 85% and also able to negotiate discounts with vets for treatments, then it changes customer value proposition. Until then competitors "catastrophic insurance" coverage might be more attractive to consumers even if they pay out only in the 50% range.

(For Example: Pay $500 for insurance at a competitor, losing only $250 in frictional costs. Or pay $1000 to Trupanion and lose $300 in frictional costs.)

Adverse Selection

The company's policy of covering 90% of costs with no limits on lifetime expenses are likely to lead to an adverse selection where sicker pets are likely to end up with the company which increases costs to its members thus reducing its attraction to the broader customer base.

So to me there are two things that need to change before the company becomes attractive:

1.   Company MLR target increases to about 85%

2.   Company starts getting enough scale that it can get discounts from vets for treatments

Of course the market would price the company differently the moment these become visible, but to me these would be the clincher.

Vinod
The fundamental algorithm of life: repeat what works. –Charlie Munger

Travis Wiedower

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Re: TRUP - Trupanion
« Reply #23 on: July 10, 2017, 08:26:20 AM »
All valid points. Economic euthanasia happens at a lower price point than you may realize--the average in 2016 was $1,433. Also, don't forget industry penetration just passed 1%. 90% of pet owners could never buy pet insurance and Trupanion may still turn out to be a fine investment.

Increasing the loss ratio and negotiating vet discounts will only be possible far off in the future. Darryl's goal is to get to an 80% loss ratio, but I asked the question at the annual meeting and he said that's very far off (10-20 years was the impression I got).
My investing blog: Egregiously Cheap

GregS

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Re: TRUP - Trupanion
« Reply #24 on: July 12, 2017, 11:52:40 AM »
Hey guys, we wrote a report on Trupanion. Hope you like it and let us know if you have questions.
https://variantviews.com/2017/07/05/trupanion-a-long-term-compounder/

angelinvestor,

I'm confused about something in your valuation.  You are assuming a 13.5% sustainable EBIT margin w/ 20% GM, 5% fixed expense and 1.5% maintenance capex, but doesn't management's "discretionary margin" exclude sales and marketing expense?

rogermunibond

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Re: TRUP - Trupanion
« Reply #25 on: July 12, 2017, 12:07:37 PM »
vinod1's points stand out on adverse selection.  say if you are a breeder of certain varieties like bulldogs, boston terriers, or boxers.  all have genetic mutations that mean they are at risk for apnea, cardiac stuff, brachycephaly related things.  you could easily recommend your buyers purchase coverage.  same for breeders who have hip dysplasia prone breeds.  meanwhile those with less problematic breeds or those who adopt from the pound have hardier pets with hybrid vigor.

this kind of insurance can be gamed.

Travis Wiedower

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Re: TRUP - Trupanion
« Reply #26 on: July 12, 2017, 04:52:13 PM »
rogermunibond,

All breeds are priced differently to account for that. Prices change based on location as well. A bulldog in New York City will be more expensive than a bulldog in Des Moines, Iowa for example. And a pug in NYC will be more expensive than the 100 other dog breeds in NYC that have less health problems than pugs.

One of the benefits of Trupanion Express is they get more and better data from the vets because Trupanion is tied into their systems. Their thought is that as Express rolls out to more vets their pricing will be able to improve in step.
My investing blog: Egregiously Cheap

SlowAppreciation

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Re: TRUP - Trupanion
« Reply #27 on: August 23, 2017, 08:34:42 AM »

Liberty

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Re: TRUP - Trupanion
« Reply #28 on: December 29, 2017, 06:39:47 AM »
Writeup here (sub required):

https://www.scuttleblurb.com/trup/
"Most haystacks don't even have a needle." |  I'm on Twitter  | Watch this, please (new link)

Liberty

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Re: TRUP - Trupanion
« Reply #29 on: February 13, 2018, 07:36:39 AM »
The link is now open to non-subscribers:

https://www.scuttleblurb.com/trup/
"Most haystacks don't even have a needle." |  I'm on Twitter  | Watch this, please (new link)