Change maker series: Dr. Jack Stephens

Editors' Note: This is the third in a series of articles about change-makers—the thought-leaders who've profoundly affected the business of veterinary practice and whose vision could change practitioners' career path, business model, or workday in the future.

JACK STEPHENS, DVM, DOESN'T HAVE A LARGE VOICE. But machismo isn't always about volume. At 5-foot-7 he was a high school wrestler, runner, and football player. He worked from six to nine in the morning as a cook, went to school, then went back to work from three to nine every afternoon. He was on his own at 15, a father at 17. When he was diagnosed with throat cancer in 1990, he was given six months to live—and he missed only two weeks of work.

Dr. Jack Stephens and his wife, Vicki.

"I'm a very disciplined person," he says.

Still, Dr. Stephens has needed all the volume and strength he could muster to wrestle pet insurance into existence. Pet insurance was, he thinks, an alien concept in 1982 when he first went to the mat with the idea. Today, an estimated 520,000 policies are spread unevenly among 11 U.S. companies. In his lifetime, he thinks the industry could reach $3 billion.

The largest insurer, by far, is Veterinary Pet Insurance, the company Dr. Stephens founded 25 years ago and fought to keep alive for more than two tumultuous decades. He left VPI in late 2004, and his departure was not without controversy. Rather than retire, Dr. Stephens started a new pet insurance company, Pets Best.

"Why not just go fishing?" we asked this 60-year-old agent of change.

"I guess I'm just uncomfortable when I'm not working," he said.

Q. When did you decide pet insurance was an idea that ought to happen?

A. I was in practice, and I realized it wasn't what I thought it was going to be. Practice in the 1970s was too reliant on vaccines, and we weren't getting paid for our knowledge. And I just hated putting pets to sleep. So I started looking for solutions that would let veterinarians practice medicine. I wasn't a fan of pet insurance at the time, but as time went on I got more enamored. I found 900 veterinarians to trust me and invest, and off we went.

Q. That was about 1980, right?

A. It's been 25 years last month since VPI started selling policies.

Q. What were people saying about pet insurance then?

A. It was a totally new concept for veterinarians. Although there had been a few attempts to launch the idea before that, it hadn't gotten much exposure. I started talking it up—saying that it was the only viable way to help consumers afford our services. That made it the only way to stop economic euthanasia. I was just sick of economic euthanasia. And the bond wasn't as strong then. People weren't willing to spend as much on their pets as they are today.

Q. Was there a lot more economic euthanasia then?

A. I did a survey in 1980 that showed that once the veterinary bill topped $275, most people would not pay for care. Today that number is well over $1,500. I think it's still too low, but it has risen a great deal.

Q. And you'd attribute that to improvement in the bond?

A. Yes. If it weren't for improvement in the bond and pet owners' willingness to spend more, there wouldn't be a need to transfer risk, and pet insurance relies on that need. As consumers have come to spend more on their pets, they've had to look for other avenues of help because they simply can't afford it. In those days a $300 veterinary bill was a lot. Today, $3,000 is a lot.

Q. There are people who love their pets but have to put food on the table—that's not a choice most people have to make in human medicine.

A. Right. I had my own defining moment. I'd moved to an affluent community so I could practice better medicine. But even in the second-most-affluent area in California, clients were sometimes too strapped for veterinary care.

A woman came in with her daughter, and their pet was very sick. They'd had the pet for years and the woman said, "Do whatever it takes; we don't care. Bucky's part of the family." I said, "Great, you need to do this and this and this." And she said, "Fine."

But then she said, "Give us an estimate." She stepped behind her daughter and started shaking her head no—her daughter couldn't see it but I could. She kept asking, "Is there anything else?" And I'd say, "We could try this and not do the test, but that's not best." She kept shaking her head, and I finally said, "Well, the last alternative is to put her to sleep." And she said, "Well, if you think that's best, doctor." I said, "No, I don't think that's best, but that's an alternative." To make a long story short, she put Bucky to sleep.

A couple of months later I was walking through the grocery store with my wife and we ran into the mother and daughter. The mother said, "Oh, hi, you remember Dr. Stephens, don't you?" And the daughter said, "Yes, he's the man who killed my dog."

Q. That would cut to the core.

A. That was it. I said, "I'm not doing this anymore. I'm not putting pets to sleep. I've got to help the owners pay for it." I went on a mission. I didn't know what I was getting into, but that's how I got started with insurance.

Q. Did you know all the impediments you'd face?

A. Oh, Lord, no. I wouldn't have done it. The regulations, the bureaucracy, the reserves, the money raising, the stress. But I had all my friends' money in it and I couldn't pay them back, so I couldn't quit. I wanted to quit many, many times. It took me from 1982 to 1997 to hit $8 million in gross revenue. And in those 15 years I went down to the state department of insurance two or three times a year begging them to keep me open, problem after problem. In 1997 we did $8 million, and in 2003 we did over $100 million. It just took off. That's a happy ending.

Q. Yes, but that's an awfully hard test.

A. The biggest problem was that you have to have enough premiums to be able to administer a plan, sell it, and operate it. You have to have about 75,000 policies to break even. And it's a heavily regulated business. In the United Kingdom, pet insurance is monitored by the government but not regulated. The penetration is also much better. In the United Kingdom about 19 percent of pets are insured. In Sweden it's 60 percent.

Q. How has that affected pet care in those countries?

A. More pets are getting care. That's what happens when you have insurance.

Q. So has the availability of insurance alleviated the problems you saw initially?

A. It has. It hasn't impacted us as a profession as much as I wanted it to. But pet insurance has helped almost 2 million pets get better care and avoid being euthanized just because of cost. I've helped a lot of pets and there are a lot more to help.

But I think the impact on the profession has primarily been psychological. If a person doesn't have insurance and they can't pay their bill, it puts a burden on the veterinarian to discount. Now that there's insurance, it takes that guilt trip off the veterinarian.

Q. What is the future of veterinary insurance?

A. It's going to increase now, because we have more players in the market. That additional competition will start creating more awareness. I think it will really affect veterinary medicine once we hit 5 or 6 percent penetration.

Q. What's the critical mass at which veterinary insurance begins to be more common?

A. I think we've reached the tipping point. We have 11 pet insurers in the market who know what they're doing. And there have been some critical changes in the industry. One, of course, is that the human-animal bond continues to improve, and that means pet insurance will become more viable. Also, technology has improved. For instance, we deliver policies and forms by e-mail so we don't pay for postage.

I talk to most of my competitors regularly, and in September I'm holding a summit of all the North American pet insurers so we can talk about what we can do to build the industry. Some of the newer companies are starting to see profits now, and that's good for the industry.

Q. It's a long time to wait for profits, isn't it?

A. Oh, my gosh, yes. It took almost 17 years for me the first time, but this time we're on track to produce a profit in our third year. A small profit.

Q. This has to be one of the most difficult industries to crack ever.

A. It is; that's why we see so many companies come and go. A lot of the early companies paid out more in claims than they received in premiums, but we don't see that anymore with the new companies. These new companies know how to underwrite and price.

Q. Some people are saying that after years of not charging enough, veterinarians are now charging too much.

A. I hear that all the time and I'm in total disagreement. What I see is pets getting better care, better workups, and better treatment. I want more pets, not fewer, to get better care.

That's why I say we've reached a tipping point in pet insurance. People have to look somewhere for help, and pet insurance is simply exploding.

Q. Have veterinarians warmed to the idea of pet insurance?

A. I think veterinarians are getting on board because it's so difficult for pet owners to pay a $3,000 bill. They just can't do it. Veterinarians have to get behind pet insurance, or we'll end up with a black eye as a profession because clients can't manage the costs.

Q. Human health insurance has gotten a black eye.

A. For 25 years I've been preaching that we not go to managed care, and it looks like the AVMA and AAHA are going to get involved. One of my goals has been to make sure the veterinary profession is involved in shaping the direction of pet insurance.

Q. Jack, you've been in this battle since 1980. That's 27 years. Why not go fishing?

A. My job wasn't done. I wasn't happy leaving without helping pet insurance go in the right direction. And I love what I do. I love building businesses. I love building teams. I'm at work at seven in the morning, I leave at five or six at night, and I thoroughly enjoy it.

As you probably know, I'm a proponent of the positive attributes of pets. In 1990, I got throat cancer and was given six months to a year to live. VPI at the time was practically bankrupt. I had to go through chemo and surgery and my wife wanted me to quit work, do my treatments, and travel and spend time with her. I thought about it for a week or two and I said, "I'm doing what I set out to do, which is to help pets get more treatment, and that's what I'm going to keep doing."

When I went through this cancer I was transformed significantly. I used to be a macho guy even though I was 5-foot-7. And I had big dogs. But my wife had a little miniature pinscher, Spanky, who taught me about the bond, something I had lost since I was a child. I got so caught up in my career I forgot how vital pets were.

Q. How did Spanky teach you about the bond?

A. As soon as I had the cancer, Spanky changed. He started waiting in the window for me five minutes before I got home. During chemo he knew when to jump up in my lap and let me hold him. And when I was too sick to pet him, he'd just sit off to the side and watch me. He started bringing his leash to me and pushing me to go for walks, even though I didn't feel like it. He didn't do it before and he didn't do it after I went into remission.

Q. What can we hope for in the future for pet insurance?

A. It's going to become a multibillion-dollar industry. We know that from looking at what's happening in Europe. We're on the same growth pattern as Europe and we have 10 times the market size. The bond is growing rapidly. Veterinary medicine is getting more sophisticated. So everything is driving toward a point where consumers have to have help. Because more pet owners will have help, a lot more pets will get care. And I see pet insurance making the veterinary profession much more robust. It's going to drive more revenue into the veterinary profession, and that's warranted. Pets give us a lot of value, and pet owners will realize they have to protect that bond.