Pet adoptions mushroomed quickly during the pandemic as people worked from home and wanted a dog or cat or an other animal to keep them company. They spent money on pet food and supplies, veterinary visits and treated their pets as cherished family members (as they should be). All of this generated roughly $124 billion in pet industry expenditures in 2021, compared to about $90 billion in 2018, according to the American Pet Products Association.

And no surprise – with such burgeoning growth, M&A activity has followed, as entrepreneurs and investors look for a slice of this large and lucrative pie.

But there’s one segment of the U.S. animal companion market –pet insurance–that until recently has remained quiet, with only a small group of players attempting to attract a massive percentage of pet owners who are ripe for the picking. While there are about 160 million pets living in U.S. households, only 2.48 percent of them are insured, noted the North American Pet Health Insurance Association (NAPHIA) in its 2022 State of the Industry Report. This translates to about 156 million pets uninsured – and that’s a lot of pet owners to target. So far, that targeting has paid off: The average annual growth rate of insured pets in the country since 2017 is 21.6 percent, NAPHIA reported.

As Kristen Lynch, NAPHIA’s executive director recently said, the potential runway for this industry is huge. “This is a product that is only going to grow,” she said.

This upward trajectory has created a market that private equity firms, insurance companies, big-box retailers and others want to enter– and a souk starting to sizzle in terms of investments, M&A and potential consolidation.

Why Such a Hot Market?

For starters, the cost of veterinary care, the intensifying human-animal bond and the growing number of pet parents –many of them Millennials — have driven increased adoption of pet insurance. U.S. investors and providers hope that consumers will soon begin to look at pet insurance as “normal” –much like it is in Sweden, for example, where almost 80 percent of dogs are insured, according to the country’s National Veterinary Institute.

“The goal of all of us in pet insurance is to take this industry, which has historically been a niche player in insurance, and make it mainstream,” says Paul Guyardo, CEO of Fetch by The Dodo (formerly Petplan), a North American provider of pet insurance based in New York. “All of the technology and innovation that exists in human healthcare has now come into the veterinary space: chemotherapy, hydrotherapy, acupuncture, behavioral therapy, bone marrow transplants –and that is very expensive, and pet insurance at its best can make these services far more accessible to Main Street Americans.”

In addition, many companies, such as, based in Santa Clara, Calif., and Choozle, a Denver-based digital advertising software business, now offer pet insurance to their employees, a benefit that can help these organizations not only attract but retain workers. “Someone who has a happy, healthy pet is a happy, healthy employee,” Lynch says.

Pet insurance providers offer recurring revenue, and “a captive number of subscribers paying premiums on a monthly basis,” says entrepreneur Wendy Wen, CEO of Antelope, a pet consumer platform that includes digital pet insurance provider Doggo. Customers who buy pet insurance typically do not switch to another provider due to pre-existing condition clauses, she says.

And pet insurance is a seriously underpenetrated market. “It’s exciting to see a vertical in insurance where you can capture a new market – rather than take [customers] from an established company,” says Mike Vostrizansky, principal at growth equity investment firm FTV Capital in New York.

Two years ago FTV led the $98 million Series C round of Bought By Many, a London-based pet insurance company. Bought By Many has since rebranded its name to ManyPets, trying to continue its growth in markets such as Sweden and North America.

More Players, More Deals

Deal activity in the pet insurance sector has been robust over the past three years. Warburg Pincus LLC bought Petplan in October 2019, rebranded the company as Fetch and has provided resources for the company’s solid growth.

In November 2021, San Francisco-based Alpine Investors, in conjunction with Wen, launched Antelope. Under the private equity firm’s umbrella, Antelope has since acquired four businesses, including healthy pet treat company Bocce’s Bakery and Doggo.

“The hope is that we can introduce Doggo’s customers to Bocce and Bocce’s customers to Doggo,” says Wen. Alpine typically holds on to its portfolio companies for five to seven years, she added, but when the time comes to sell, “The goal is for Antelope to exit as one entity”.

Venture capital firms are also engaged in the space. Last year, early stage venture capital firm Revolution Ventures led the $12.5 million Series A financing round for newer pet insurance entrant Wagmo.

Cross-border deals and investments are also occurring. In September of this year, publicly traded Trupanion Inc., a Seattle-based pet insurance provider, entered the European market by acquiring Smart Paws GmbH, an insurer operating in both Germany and Switzerland.

Insurance companies could be the most active acquirers going forward. Nationwide Mutual Insurance Company has offered pet insurance for over 40 years. But in 2019 NSM Insurance Group, a developer and underwriter of insurance programs for things like collector cars, acquired Cleveland-based Embrace Pet Insurance, and MetLife Inc., snagged PetFirst Healthcare LLC, a pet health insurance administrator.

Other non-insurance businesses have also entered the field: Financial services company Synchrony bought pet health insurance player Pets Best Insurance Services LLC; animal pharmaceutical company Zoetis Inc., launched Pumpkin Pet Insurance; late last year; retailer Chewy Inc., announced it was partnering with Trupanion to offer pet insurance to its customers.

Challenges ahead

Despite the sector’s allure, the barrier to entry is thorny. “Insurance is very much about data,” Vostrizansky says. “If you don’t have adequate data — by breed, geography, age — it’s difficult to underwrite these policies. And if you don’t have that it can be challenging to enter the market.”

Rising veterinary costs and treatments can also “result in larger loss ratios for insurers”, he added.

What’s more, says NAPHIA’s Lynch, in order to be competitive, pet insurance providers must be able to market their product in every U.S. state, all of which have their own guidelines. “The cost of building that infrastructure to be able to comply in every state by phone and internet is complex,” she noted.

And the biggest challenge: Pet insurance providers are faced with changing the mindset of consumers, many of whom still question why they need to insure Bailey their dog or Booda their cat by paying monthly premiums. And for those who want pet insurance, the market is flooded with numerous choices. “The burden is upon us to tell the story and to clarify why Doggo is better than other companies,” Wen acknowledged.

Despite these hurdles, investors and providers expect more companies to enter the pet insurance market, with ongoing M&A. “This is a category that is estimated to continue to grow by double digits for many years to come,” Guyardo says.

Vostrizansky says any company can be a buyer in this industry.

This includes retailers like Amazon and Walmart, or other insurance giants. Walmart already partners with Fetch by The Dodo to offer pet insurance.

One thing seems certain: thanks to the more than 97 percent of white space in this sector, “valuations will remain high given that backdrop,” Vostrizansky says.