Trupanion

VIN News Service photo

Founded in Vancouver, Canada, in 2000, Trupanion is now based in Seattle.

Washington state regulators are looking into allegations that the pet insurance company Trupanion is inappropriately rewarding veterinary clinics for referring pet owners to the company, facilitating enrollments, and otherwise promoting the company to prospective customers.

Documents obtained by the VIN News Service through a public records request show that the state Office of the Insurance Commissioner opened an investigation on April 27 into American Pet Insurance Company (APIC), an underwriter owned by Trupanion, which has headquarters in Seattle and sells insurance in all 50 states and Canada.

A case description states: "Entity is offering a variety of inducements, to include cash incentives and prizes in excess of $100 to veterinarians, veterinary hospitals and animal organizations as an inducement to refer consumers to purchase insurance."

The company's activities potentially violate three provisions in the law, according to the documents: A prohibition on gifts valued in excess of $100 for the referral of insurance business; a prohibition on inducements involving, among other things, prizes valued at more than $100 in any consecutive 12-month period; and involvement of individuals selling, soliciting or negotiating insurance without a license to do so.

In 2016, APIC was fined $150,000 by the Washington state insurance commissioner for numerous violations, including that "none of the employees who sold insurance to Washington consumers were licensed insurance producers," according to a news release. The violation pertained to the company's call-center staff. APIC is subject to an additional $100,000 fine if it commits the same violations within two years.

In telephone interviews this week, Trupanion CEO Darryl Rawlings expressed confidence that the current investigation will conclude that the company has done nothing wrong.

"There's no problem with having a rewards program," he said.

However, the company recently notified participating hospitals that it would be ending its current rewards program. In a press release posted today, Trupanion said the decision was unrelated to the regulatory inquiry. Rather, the program, which was meant "to enhance behaviors within hospitals in support of the Trupanion member claims experience ... was not having the desired results," it said.

In a letter dated July 3 responding to questions from an insurance investigator, Trupanion explained that under the program, hospitals could earn points by, for example, setting up direct deposit to receive claims payments; submitting paid claims through a computer program called Trupanion Express; and fulfilling an initial records request for a new pet to enable expedited processing of a claim when the pet made subsequent visits to the hospital.

Trupanion also identified the veterinary practices in Washington that participated in the rewards program. A list submitted to the state on July 10 shows 53 participants. About half earned no points between November 2016, when the program began, and May 2018. Seven practices logged the most activity, earning points in seven or more months of the 19 month-period shown. The most active hospital earned 7,780 points in 15 months.

Materials in the investigation file show rewards ranging from $50 gift cards for iTunes, Home Depot, IHOP, Dunkin' Donuts and the like; to vacations in destinations such as Napa, Miami, New York City and Jackson Hole. The gift cards required 650 points and the trips required upwards of 36,000 points, according to information in the file.

Trupanion's press release about the program's end states that the total value of point redemptions nationwide averaged less than $50,000 per year.

The rewards were predicated on the use of the Trupanion Express software. Clinics that integrate the software in their practice-management computer systems may submit claims on pet owners' behalf, and can arrange to receive payments directly from Trupanion, saving their clients the need to pay upfront and wait for reimbursement.

Clinics also may offer prospective customers a 30-day free trial. Using Trupanion Express, veterinary staff click a button that prompts Trupanion to send an email or text to the interested pet owner to begin the sign-up process.

Rawlings declined to say how many veterinary hospitals use Trupanion Express software. He said only a subset of those hospitals participated in the "partner program" that netted points. Being a Trupanion partner, he said, "means we give more training to the hospital ... and the training we're doing is about providing better service for clients. ... The whole goal is, we want to be paying [claims to] the hospital directly in under five minutes, 24 hours a day, seven days a week."

'Skirting a boundary unknowingly'

Several owners of veterinary practices in Washington identified by Trupanion as eligible to earn points for rewards said they had little to no knowledge of the program.

"I don't consider us [to be] working with insurance companies or for them," Dr. Donald Gerard, owner of Bellevue Animal Hospital in Bellevue, said. Nor does the hospital refer pet owners to Trupanion preferentially, he said: "We never had any sort of meeting to say, 'Let's refer to Trupanion because there's rewards.' "

Gerard also said he didn't know that insurers were prohibited from giving substantive rewards. "Pretty much all of our veterinary suppliers have some sort of rewards program. I don't think anybody would have thought differently of this," he said. Pondering further, he added, "But because it's insurance, they have to live by their own rules."

Gerard's practice manager, Jennifer Garcia, who handles the hospital's business matters, said the practice joined the rewards program two or three months ago at the invitation of a Trupanion sales representative. "The rep was like, 'You guys don't belong to the rewards program. Do you want to?' I said, 'Do we have to do anything?' She said no, so I signed up," Garcia recounted.

"To be quite honest, I haven't paid attention to it," she added. "I have no idea [how points are earned]." Information provided by Trupanion to state regulators shows Bellevue Animal Hospital had accumulated zero points as of May.

The hospital apparently has earned points since then. "I get an email from them once a month that says you have points to use," Garcia said. Her understanding was that "when I amass enough points, there's a rewards shopping site. I can take my points and buy stuff with it."

Of six practice owners or managers reached by VIN News, none was aware of the state investigation. Many also said they were unfamiliar with the rules against unlicensed solicitation of insurance and unclear on what exactly constitutes solicitation.

The Lower Columbia Veterinary Clinic in Longview sports a Trupanion logo on its website that, when clicked, links to Trupanion's website. The clinic reportedly earned 786 points over the course of 10 months. Clinic owner Dr. Tammy Lynn White told VIN News, "We do make clients aware that insurance is available, and we have literature on Trupanion. I don't know if that's considered selling it or not."

She mused, "It sounds like ... we should make clients aware of pet insurance but not recommend any particular pet insurance. I had no idea that that was illegal, or that we were selling insurance."

In Seattle, Dr. Robin Riedinger, owner of Hawthorne Hills Veterinary Hospital, which reportedly earned 211 points in two months, said her practice provides information to pet owners about a variety of insurers, not only Trupanion.

"We have a little packet that has the company brochures from five or six different companies, and then we have a thing that we wrote up, essentials of pet insurance. ... We've given that stuff to clients and said, 'Go do your due diligence,' " Riedinger said.

She said her practice did not try to earn points from Trupanion, nor has it redeemed any.

Likewise, Dr. Polly Martin, owner of Salmon Creek Veterinary Clinic in Vancouver, which reportedly earned 506 points over 15 months, said her clinic has claimed no rewards. And while she advocates pet insurance because she believes it helps pet owners better afford comprehensive veterinary care, Martin said she wishes that Trupanion had explained the rules against unlicensed solicitation "so that we weren't skirting a boundary unknowingly."

She said, "Trupanion is the one that's instigating the relationship, so it's incumbent upon them to communicate to the clinics that they're not allowed to sell insurance on their behalf."

Instead, company representatives simply instructed clinic staff not to try to answer client questions about price or other particulars, she said. "Just have them call us," they would say. Martin recalled, "They said that a lot."

Rawlings

VIN News Service photo

Darryl Rawlings is CEO of Trupanion.

Rawlings provided to VIN News today a copy of a new Trupanion document titled "What the veterinary profession should know regarding insurance licensing requirements" that he said is being distributed to the company's hospital partners. Among other things, the document addresses what constitutes selling, soliciting and negotiating for insurance.

Rawlings acknowledged that some company representatives previously may not have conveyed that information clearly to veterinarians and their staffs. "It's ... quite frankly, a boring, technical subject, so putting something in writing will hopefully help," he said.

Company draws drumbeat of negative attention

Documents from the Washington insurance office inquiry were first made public on Oct. 19 by an anonymous investor posting in an online forum called Seeking Alpha. Writing under the handle The Capitolist, the investor has since Aug. 16 posted eight times about Trupanion, maintaining that the publicly traded company is a poor investment and elaborating on why. The writer is shorting Trupanion, meaning that he is betting against the company's success and will make money if Trupanion stock loses value.

In other instances of negative attention, a subscription-based news service called The Capitol Forum that covers business, investment, regulatory and consumer issues has published at least six articles about Trupanion since December. A piece on March 21 focused on the relationship between Trupanion and veterinary practices. It stated that Trupanion's "system of non-cash rewards for veterinary practices ... may run afoul of state insurance laws." An article on April 3, sounding the same theme, focused on Trupanion's status as a "preferred" pet insurance vendor of VCA Animal Hospitals, which has more than 800 hospitals in the U.S. and Canada.

Barron's, a publisher of financial and investment news, weighed in with an article on Sept. 23 headlined, "Shares of Pet Insurer Trupanion are Overvalued." That was followed on Oct. 20 with "Trupanion Stock Sinks After Report of State Probe," referencing The Capitolist's Oct. 19 post.

On Oct. 20, Trupanion announced that it had just insured its 500,000th pet, and on Oct. 22, Barron's reported, "Trupanion Stock Rebounds After It Rebuts Critics," citing a company statement addressing the allegations.

The statement reads in part, "[W]e do not believe veterinarians or Trupanion Territory Partners need to be licensed, as they are not being asked to sell or solicit Trupanion insurance policies." Territory Partners serve as company liaisons to veterinarians.

The statement also says the company has been in communication over the years with insurance regulators. "We believe they understand our business well, including how we interact with veterinarians," and "we have no expectation that we will need to change our business practices."

Trupanion says that it believes the recent inquiries from regulators "were driven by capital market participants or competitors." Rawlings told VIN News that Trupanion is a target of some in the investment world "because the value of our stock climbed really high in a short period of time."

Founded in Vancouver, Canada, in 2000, Trupanion expanded to the United States and moved to Seattle in 2008. The company made an initial public offering on NASDAQ in July 2014 at $10 per share. Between April 2017 and July 2018, its share values tripled, reaching a peak of $45.96 on July 20. The stock closed at $23.33 today.

Update: The Washington state Office of the Insurance Commissioner announced on June 25, 2019, that it has fined Trupanion $100,000 for using unlicensed sales partners.