Paul Guyardo is the CEO of Petplan, a privately held pet health insurance company that was acquired last year by private equity company Warburg Pincus. Guyardo has extensive corporate leadership experience, having served in leadership roles at Discovery, DIRECTV, and HSN before joining Petplan in 2019. It was my pleasure to speak to him over the phone earlier this month and ask him about the fast-growing pet health insurance industry, and how Petplan is capitalizing on that growth while improving the lives of pets by providing better access to care.
Below are excerpts from our conversation and the key takeaways.
The pet insurance industry is poised for significant growth over the coming decades
Luis Sanchez (TMF): How would you describe the long-term growth in the pet insurance industry, and what is driving the growth?
Paul Guyardo (Petplan CEO): We are very bullish on the growth outlook of the industry for several reasons. Pet insurance in the U.S. and Canada is underpenetrated compared to European markets. The sector has grown at an average rate of 20% since 2014, yet we only have 1% to 2% of dogs and cats that are insured in the U.S. For comparison purposes, penetration in Europe ranges from 25% to 40%.
Another driver of growth is innovation in pet medicine. It's leading to rising veterinarian costs. It's unbelievable what's now available for pets. Things like MRIs for pets, early cancer detection, insulin for pets with diabetes -- essentially almost everything you hear about that is available in human healthcare is becoming available for pets, and some of this is very expensive. Therefore, people need insurance if they want their pets to have access to these treatments.
Finally, there is a change in mindset among pet owners. If you visit our homepage for Petplan, our tag line is "Petplan: Because pets are family." Pets are really now being considered a member of the family, which is really different from my parents' generation. In prior generations, if a pet got sick, you would just respectfully put it down, but now there is a mindset of wanting to care for a pet just like you would want to care for a human family member.
Commentary: The pet insurance industry is poised for growth as the total number of pet rises in the United States the percentage of pets covered by insurance also continues to rise. While Petplan is a private company, there are a few ways to invest in the industry through public markets. Trupanion is a pure-play pet insurance company. Zoetis is primarily a pet pharmaceutical company but recently launched its own pet insurance brand called Pumpkin.
Petplan differentiates itself by offering better coverage, but increased consumer awareness is needed
Luis Sanchez (TMF): How does Petplan differentiate itself from competing pet insurance products?
Paul Guyardo (Petplan CEO): Petplan has the most comprehensive coverage in North America. Other competitors do not offer the same coverage as we do, or they require add-ons to existing coverages. For example, if your dog is sick because he ate a sock, other insurance will cover the removal of the foreign body but won't cover the diagnostic test needed to find out what caused the problem -- we cover both.
Another example, the other guys claim to cover dental but when you look closely at their policy, they only cover the four canine teeth. Petplan covers every tooth in the mouth. We were the first to cover homeopathic therapies at no extra cost.
Also, many pet insurers exclude chronic and hereditary coverage. That's a big deal if you have a purebred such as a German Shepherd that is predisposed to hip dysplasia. Other insurers will carve that out of coverage. We also cover boarding fees up to $1,000.
So this is just all to underline that we have better coverage.
We also have a history of innovation. Long before COVID-19, we added telehealth. Customers can choose to FaceTime, text, chat, or email. Other insurers have had to catch up and add telehealth in 2020.
Finally, we excel at customer service. We have 24/7 customer support and we make it really easy to get ahold of us.
Luis Sanchez (TMF): Given that you cover so much, do you price at a premium to competitors?
Paul Guyardo (Petplan CEO): We position ourselves as the best value. If you want the cheapest, you go for HealthyPaws. Other providers will always beat us on price because they exclude a lot of coverage. When you look at Trupanion, we will appear more expensive at first but when you add in all the extra coverage amendments you need to add to Trupanion's plan to get to what Petplan covers, our prices are comparable.
So I would call us a good value but definitely not the lowest price.
Luis Sanchez (TMF): How do you educate potential customers and veterinarians on the value you provide?
Paul Guyardo (Petplan CEO): We rely heavily on the digital channel. We're heavy into paid and organic search. We reach 30 million to 40 million people on Facebook and Instagram feeds. We rely on our website a lot for education. We have all sorts of blogs on pet insurance, health, and wellness.
At this point in our lifecycle, we are absorbing the existing demand that is out there vs. creating new demand. Expanding our addressable market will become a greater focus in 2021 and beyond.
Luis Sanchez (TMF): Having done the homework, it is clear to me that pet insurance provides value to customers, and that many if not most pet owners should try to get their pets insured. But do you feel that it is easy to educate the customer? Does the average customer understand that Petplan is priced higher because it provides better value, or do consumers see that Petplan is a higher price and choose a cheaper option due to "sticker shock?"
Paul Guyardo (Petplan CEO): I think educating customers is a real opportunity. You're exactly right. The awareness of pet insurance pre-COVID was very, very low and highly misunderstood.
I agree with you that the first thing a potential customer does is price compare. So we are actually going to be making price transparency a big priority by rolling out a tool that allows pet owners to show how coverage compares between different insurance products. We need to make it super easy to comparison shop on coverage, not just price.
Fortunately, pet insurance is a considered purpose. It's not done on an impulse buy. Customers will actually come to our website two or three times before they actually purchase anything, and that is a good thing because it gives us an opportunity to educate.
Commentary: Unlike other consumer products, insurance can be hard to differentiate -- this is also true for pet insurance. Petplan argues its insurance product offers better coverage than competing products such as the ones offered by Trupanion or Healthy Paws (a privately owned competitor). Interestingly, Trupanion has also gone the route of offering more coverage to a great degree of success -- but Petplan argues that they go even further than Trupanion in terms of what they cover and, therefore, provides a differentiated offering.
Running a pet insurance company has similarities to other direct-to-consumer businesses
Luis Sanchez (TMF): Paul, you have an extensive background in corporate America, having worked in leadership roles at companies including Discovery, DIRECTV, and HSN. What skills and knowledge from prior companies were you able to apply to running Petplan, and what did you have to learn?
Paul Guyardo (Petplan CEO): I appreciate the question because some people will look at my resume and it becomes a head-scratcher. How does someone go from DIRECTV and Discovery to pet insurance? But we run the business at Petplan identically to how we ran the business at DIRECTV.
We are hyper-focused on unit economics. All the metrics we were focused on at DIRECTV, we use at Petplan. We are not just focused on bringing in new business but we are focused on the quality of the new business we bring in. What is the churn rate of new customers, the average revenue per user (ARPU), the cost of customer acquisition, the customer lifetime value? We're constantly reading and reacting to all this data.
By using this lens, we run the business a little differently than other pet insurers. I believe competitors are growing at the expense of profitability. That's not us. We are single-mindedly focused on profitable growth.
There was one metric I did have to learn at Petplan. The one metric that you need to control as an insurance company to ensure profitability is your loss ratio. That's just one additional metric that I had to learn and that we monitor in addition to the other ones because it is the key to profitability.
I would say that I learned how to build a great team at other companies. DIRECTV was not a one-person show by any stretch of the imagination, and I am working on doing the same thing at Petplan by building a great, great team.
Luis Sanchez (TMF): That's fascinating. You wouldn't think that DIRECTV and pet insurance would have anything in common, but it sounds like they do in a lot of ways.
Paul Guyardo (Petplan CEO): That's right. I am a digital direct-to-consumer person. At DIRECTV, we were selling television packages. Now we are selling subscriptions to pet insurance. It's very, very similar.
Luis Sanchez (TMF): Thank you so much for taking the time to speak with me and sharing your knowledge with The Motley Fool community.
Paul Guyardo (Petplan CEO): Thank you, Luis. It was a pleasure.
Commentary: Guyardo runs his company similar to how other direct-to-consumer subscription businesses are run. Trupanion is also managed this way. This is an interesting way to think about the business model and suggests that it would be better for investors to compare these businesses to other direct-to-consumer subscription companies instead of traditional insurance companies.