Price, Price, Baby

Pricing is an incredibly stressful fact of life for startups. It says a lot about how customers should think about a solution. Hitting a “sweet spot” is the perennial thorn in the side of most InsureTechs. InsureTech pricing will differ from more established systems that insurers are used to dealing with. Yet pricing is not the most important piece of a startup business strategy; this is vital for InsureTechs and insurers to keep in mind.

The point of initial insurer clients is proving the system. The best way to get new clients in the insurance industry is to prove success with earlier clients. The goal for startups should not be maximizing revenue; it should be obtaining referenceable insurer customers. In turn, insurers can get early access to a system and help drive direction. However, it is worth noting that a pilot price is a boxed price, and startups will likely need to rethink pricing as the system matures.

Insurers are used to negotiating contracts based on past experience with core systems in billing, claims, policy admin, and CRM. Traditional pricing models won’t apply to most startups, even those that are closer to core. So, what does pricing look like for non-core systems? How can InsureTechs approach pricing, and how can insurers interpret pricing models?

• Transaction: Many startups have implemented transaction-based pricing. This model can work when it reflects how much a client is using a system, but it can also discourage usage and tends to require a lot of maintenance.
• Premium: This model signals to insurers that startups are business partners; the tricky thing is pricing so that it doesn’t discourage usage or adoption.
• Licensing Fee: A single licensing fee tends to be lower maintenance and creates more predictability and stability for insurers and InsureTechs alike. Licensing fees can also account for things like premium and the expected number of transactions.
• Seats: Many insurers will be used to this type of pricing thanks to established vendors like Salesforce. This pricing model reflects a system that grows with increased usage.
• SaaS pricing: These payments tend to happen with more frequency and reflect a startup as a service rather than a tool or partner. Some SaaS companies charge by seat.

Pricing is a marketing tool and a starting point. It tells insurers how to think about a system and, perhaps most importantly, is not final—negotiations will happen later. Startups will need to be prepared to lose some money on initial clients, and insurers will need to recognize that licensing an early-stage startup platform comes down to partnership and investment.

Novarica hosts monthly interactive town halls for startups to discuss challenges and opportunities in the insurance industry. We hope to see you at our next event on March 17 at 3 PM ET.

Don’t hesitate to reach out to me at [email protected] or Jeff Goldberg at [email protected] if you’re interested in learning about our InsureTech Community or how Novarica works with startup vendors.