Today is Thanksgiving, and there are plenty of reasons for Americans to be thankful. Perhaps topping the list is the fact that, unlike last year, people have the opportunity to spend the holiday with their family and friends. The rollout of coronavirus disease 2019 (COVID-19) vaccinations has provided a pathway for family and friends to reconnect.
As for me, Thanksgiving this year is a time for reflection.
Max was an adventure buddy I enjoyed spending time with for more than 13 years. Rest in peace, my friend (Nov. 21, 2007-Nov. 20, 2021) Image source: Author.
Pet owners will do anything to ensure the well-being of their "family"
The goofy-looking dachshund you see above is Max. He was adopted in July 2008 and has been a part of my everyday life and activities ever since, save for vacations where I've flown to my destination. He joined me on two road trips this year and countless late-night errand runs, sat next to me on the couch while I wrote my first article every day or watched football, and was occasionally welcomed in by a local breakfast restaurant when I went out to eat. He even accommodated himself to my really odd sleep schedule, which has me waking up most days around 2 p.m. ET.
But like humans, our furry friends have a finite existence. This past Saturday, Nov. 20, I had to say goodbye to my friend due to a number of insurmountable medical complications. I already miss him something awful, but I'm grateful I was able to be his human for over 13 years.
My willingness to ensure the health and happiness of Max isn't unique among pet owners in America -- it's commonplace.
According to the American Pet Products Association, pet owners are set to spend almost $110 billion on their furry, scaled, and feathered pets this year. Looking back more than a quarter of a century, there hasn't been a year-over-year decline in spending in U.S. pet expenditures. The dot-com bubble bursting, the financial crisis, and the coronavirus pandemic were all unsuccessful in coercing pet owners to holster their cash when it comes to their "family members."
The pet industry may not be the fastest growing, but it's about as recession-resistant an industry as they come.
Image source: Getty Images.
This $136 billion industry has hardly been penetrated
While I believe Max lived a good life, he wasn't exactly lucky when it came to medical ailments. Over his lifetime, he underwent nearly a dozen surgical procedures, including an aural hematoma procedure, lipoma excision, and kidney stone removal, among other issues. Later in life, he dealt with a chronic kidney disease diagnosis that came with a laundry list of complications. He was a trooper throughout -- and so was my wallet.
Taking into account Max's multiple surgeries, procedures, and the numerous medicines needed to keep him feeling like a spry dachshund, even in his advanced years, I estimate that I spent approximately $33,000 on his care. And I'd have doled out triple that amount if it would have kept him around till age 20.
Back when I adopted Max in 2008, pet insurance wasn't exactly a booming industry, at least not in the U.S. or Canada. While options to purchase health insurance did exist, it's not something I chose to purchase or was potentially offered at the clinic level.
But I'm not alone in this respect, either. In the U.S., only 1% of companion cats and dogs are covered by health insurance. Our neighbor to the north isn't much better, with approximately 2% of Canadian pets covered by insurance. This compares to the U.K. and Sweden, which effectively lead the world in pet-insurance penetration, with 25% and 40% of all respective companion cats and dogs covered.
Based on estimates from companion-animal health-insurer Trupanion (TRUP 0.18%), a 100% penetration rate in the U.S. and Canada would equate to an addressable market of $136.4 billion. But as noted, only about 1% of this $136 billion opportunity has been tapped.
Image source: Getty Images.
An industry rife with "paw-tential"
For the moment, Trupanion is the kingpin of companion-animal health-insurance offerings. When the curtain closed on the third quarter, the company's total enrolled pets topped 1.1 million for the first time.
A significant portion of the company's business derives from monthly subscriptions. What's great about subscriptions is they provide transparent cash flow and have led to an incredibly high average monthly retention rate of 98.72%. Though Trupanion isn't currently profitable, the company's efforts to grow its subscriber base as quickly as possible are working.
Trupanion has other competitive edges, as well, on top of its subscriber count. For instance, it's the only major pet insurer that provides software to allow for payment at the time of service in veterinary clinics. The company has also been forging relationships at the clinical level for the past 20 years. The rapport it's built up within the veterinary community is priceless and has effectively made veterinarians and their staff ambassadors of the product.
Of course, there's room for plenty of winners when the size of the pie is $136 billion (and growing). In addition to Trupanion, Petco Health and Wellness (WOOF -1.82%) offer subscription health insurance for cats and dogs.
As Petco's name suggests, it's attempting to completely rebrand itself as the health and wellness store for pets. This means opening up plenty of in-store veterinary clinics, as well as bolstering its monthly subscription services by offering companion-animal insurance plans. Although Petco doesn't break out how much revenue it specifically derives from selling pet insurance, the company's recurring revenue, which includes pet insurance, repeat delivery, and Vital Care, rose 45% in the third quarter from the prior-year period.
The dynamics of the pet industry are crystal clear. More households than ever have a cat or dog, and these owners will do whatever is necessary to keep their furry family member(s) happy and healthy. Companion-animal health insurance in the U.S. and Canada is a no-brainer opportunity that offers multidecade potential and can make long-term investors a lot richer.
