Imagine the stress of a sudden, expensive vet bill for your beloved pet. Sadly, this is a common reality, especially with the increasing number of pet owners across the country. Fortunately, there’s a way to protect yourself: pet insurance.
Pet insurance functions much like human health insurance. You pay regular premiums and often have a deductible, and your pet insurance policy then covers a significant portion of your pet’s veterinary medical expenses. This industry is meeting a substantial need, and as a result, it is creating opportunities for investors.
Top Pet Insurance Stocks
Several pet insurance companies are privately held, but a number of publicly traded companies offer pet insurance as either part of their business or as their primary focus. Here are three top pet insurance stocks to consider.
-
Lemonade (LMND)
Lemonade is primarily recognized for its renter’s and homeowner’s insurance offerings. However, the company also provides pet, auto, and life insurance. Lemonade began offering pet insurance in 2020 and uses artificial intelligence (AI) and behavioral economics to streamline the insurance-buying process and expedite claim payments for its customers. Lemonade’s established renter and homeowner insurance customer base provides it with a valuable outlet to market its pet insurance products. The company’s pet insurance business has exceeded its internal targets thus far. Lemonade is growing quickly as it attracts new customers; however, the company remains unprofitable, in part due to the costs associated with customer acquisition.
-
Synchrony Financial (SYF)
Synchrony Financial is an important player in the consumer financial services market. This company provides services and products that include online banking and credit cards. In 2019, Synchrony acquired Pets Best, a pioneer in pet health insurance. The company doesn’t disclose many specifics about its pet insurance unit in its operational updates. However, as of the third quarter of 2024, the Pets Best division insured over 670,000 pets, an increase of more than 400% since the 2019 acquisition. Synchrony launched a new payment platform in October 2024, allowing consumers who use Pets Best pet insurance and the company’s CareCredit cards to have their insurance claims paid directly to their health and wellness credit cards.
-
Trupanion (TRUP)
Unlike Synchrony and Lemonade, Trupanion focuses exclusively on the pet insurance market. It also has the longest history in the market, with more than two decades of providing medical insurance for dogs and cats. By the close of the third quarter of 2024, Trupanion was covering over 1.68 million pets. Solid relationships with veterinarians across the U.S. and Canada are one of Trupanion’s competitive strengths. The company is also the only pet insurer to have software that provides for direct payments to vets at the time of checkout. Trupanion’s revenue is growing rapidly. Additionally, the company generated a profit in the third quarter of 2024 after posting losses in every previous quarter since the middle of 2020.
Identifying the Best Pet Insurance Stocks
When evaluating pet insurance companies, the process should be similar to how you would assess any health insurance company. Here are some major factors to consider:
- Revenue Mix: Understanding how a company generates most of its revenue will help you to better understand the growth prospects and risks. Some companies derive all revenue from pet insurance, while other companies have pet insurance as a smaller revenue source.
- Cash Position: Pet insurers need sufficient funds to meet all valid claims from pet owners. The companies must have solid cash positions, including short-term liquid investments, and cash equivalents.
- Free Cash Flow: Free cash flow (FCF) is the amount of cash that’s available after a company covers operating costs and capital expenditures, (i.e., physical assets like property and equipment). A pet insurer that doesn’t generate stable FCF could be forced to rely heavily on its cash holdings, which potentially could lead to problems if the FCF shortfall endures.
Risks to Consider
Every stock investment comes with a degree of risk. Certain key risks are especially relevant for pet insurance stocks:
- Declining pet ownership: While pet ownership in the U.S. is increasing, this trend could reverse due to economic downturns, which cause prospective pet owners to decide that pet care is beyond their budget.
- Increased competition: As pet insurance grows in popularity, increased competition within the market could cause pet insurers’ profits to decline due to higher marketing spending and downward price pressures.
- Unforeseen medical costs: Pet insurers rely on projections of medical costs that are within normal, historical levels. However, medical costs for pets could unexpectedly spike. For instance, a new virus could affect dogs or cats and create an unusually high volume of claims activity. Such a scenario could negatively affect pet insurers’ bottom lines.
Long-Term Potential
Despite the risks, there are convincing reasons to expect pet insurance stocks to perform well for investors in the long term. Pet ownership is consistently rising in the U.S. and many other countries. With more people working from home, pet ownership has become increasingly common. The pet insurance markets remain largely untapped, especially in the U.S. and Canada, where only about 4% of pets are insured. In contrast, the U.K. has roughly one in four pets covered by insurance, a statistic that underscores the significant market opportunity for pet insurers and pet insurance investors.
Synchrony Financial is an advertising partner of Motley Fool Money. Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lemonade and Trupanion. The Motley Fool has a disclosure policy.
