Top Pet Insurance Stocks of 2024
Imagine facing the agonizing situation of your beloved pet requiring expensive surgery you cannot afford. This isn’t a rare scenario, especially with pet ownership rising.
The good news is there’s a way to avoid this scenario. Pet insurance works like your own medical insurance. You pay premiums and typically deductibles, with the pet insurance covering much of the cost of veterinary medical care for your pet.
Image source: Getty Images.
Pet insurance companies are meeting a significant need and creating opportunities for investors. Here are the top three pet insurance stocks and what you should consider before investing in the pet insurance sector.
Three top stocks
Top pet insurance stocks in 2024
Several pure-play pet insurance companies are privately held, but some publicly traded companies offer pet insurance as either part or all of their business. Three top pet insurance stocks are:
- Lemonade (LMND 16.04%)
- Synchrony Financial (SYF 1.18%)
- Trupanion (TRUP -2.15%)
1. Lemonade
Lemonade is best known for providing renter and homeowner insurance. However, the company also offers pet, auto, and life insurance.
The company began offering pet insurance in 2020. It uses artificial intelligence (AI) and behavioral economics research to make it easy for customers to buy insurance online and receive payment for claims. Lemonade’s renter and homeowner insurance business gives it a great opportunity to market its pet insurance products. So far, the company’s pet insurance business has far exceeded its internal goals.
Lemonade is growing fast by attracting new customers. However, the company remains unprofitable, in large part due to its increasing expenses related to customer acquisition.
2. Synchrony Financial
Synchrony Financial is a major player in the consumer financial services market. The company offers products and services that include credit cards and online banking for individuals. In 2019, it acquired Pets Best, a pioneer in pet health insurance.
Synchrony doesn’t provide many details about its pet insurance unit in its operational updates. However, as of the third quarter of 2024, the Pets Best division insured more than 670,000 pets, up more than 400% from the 2019 acquisition.
In October 2024, Synchrony launched a new payment platform for pet owners. Consumers who use the company’s CareCredit cards and Pets Best pet insurance can have their insurance claims paid directly to their health and wellness credit cards.
3. Trupanion
Unlike Lemonade and Synchrony, Trupanion focuses exclusively on the pet insurance market. It’s also been in the market the longest, with more than two decades of selling medical insurance for cats and dogs.
By the end of the third quarter of 2024, Trupanion was covering more than 1.68 million pets. One of Trupanion’s competitive advantages is that it maintains solid relationships with veterinarians in the U.S. and Canada. It’s also the only pet insurer with software that enables direct payments to veterinarians at checkout.
The company’s revenue is growing quickly, too. Trupanion also generated a profit in the third quarter of 2024 after posting losses in all previous quarters since mid-2020.
Identify the best
Identifying the best pet insurance stocks
You can evaluate pet insurance companies like you would any company, especially any health insurance company. Some key aspects to consider:
- Revenue mix: Some companies derive all their revenue from pet insurance, while pet insurance is a smaller source of revenue for others. Understanding how a company generates most of its revenue will help you better grasp its growth prospects and risks.
- Cash position: Pet insurers need enough money to pay all legitimate claims filed by pet owners. The companies must have solid cash positions, including cash, cash equivalents, and short-term liquid investments.
- Free cash flow: The amount of cash remaining after a company pays all its operating costs and capital expenditures (i.e., physical assets such as property and equipment) is its free cash flow (FCF). A pet insurer that doesn’t generate stable FCF could be forced to tap its cash holdings too heavily, potentially leading to problems if the FCF shortfall continues.
Risks
Risks of investing in pet insurance stocks
Every stock investment carries risks. These key risks are especially relevant for pet insurance stocks:
- Declining pet ownership: While pet ownership in the U.S. is currently increasing, this trend could reverse. Major economic downturns, for example, could make owning a pet too costly. Any significant negative shift in pet ownership would hurt pet insurance stocks.
- Increased competition: As pet insurance becomes more popular, competition in the pet insurance market could increase. This could cause pet insurers’ profits to decline as costs rise from higher marketing spending and potential pricing pressures.
- Unforeseen medical costs: Pet insurers rely on projections of medical costs within normal historical levels. It’s possible, though, that medical costs for pets could unexpectedly spike. For example, a new virus could emerge that directly affects cats or dogs and causes unusually high claims activity. This scenario could negatively affect pet insurers’ bottom lines.
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Long-term win?
Pet insurance stocks could be long-term winners
Despite the risks, there are good reasons to expect pet insurance stocks to perform well for investors over the long term. Pet ownership in the U.S. and many other countries is consistently rising. With more people working from home, having pets has become increasingly common.
Pet insurance markets remain largely unpenetrated, particularly in the U.S. and Canada. Only about 4% of pets in these markets are currently insured. In the U.K., though, roughly one in four pets is covered by insurance. The geographic discrepancy underscores how big the market opportunity could be for pet insurers — and investors in pet insurance stocks.
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