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Frameworks, core principles and top case studies for SaaS pricing, learnt and refined over 28+ years of SaaS-monetization experience.
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In the rapidly evolving landscape of insurance technology, Managing General Agents (MGAs) are increasingly leveraging SaaS solutions to streamline operations, enhance customer experiences, and drive growth. At the center of this transformation is a critical decision: how should these software providers price their solutions? Usage-based pricing (UBP) has emerged as a compelling option, but it's not a one-size-fits-all solution for the insurtech ecosystem.
Understanding Usage-Based Pricing in the Insurtech MGA Context
Usage-based pricing allows SaaS providers to charge customers based on their actual consumption of the service rather than a flat subscription fee. For insurtech platforms serving MGAs, this could mean pricing based on:
- Number of policies processed
- Premium volume managed
- Claims handled
- API calls made
- Data storage utilized
- Number of users or seats
This pricing metric approach contrasts with traditional subscription models and can align more closely with the operational realities of insurance intermediaries.
When Usage-Based Pricing Works for Insurtech MGA SaaS Solutions
1. When Customer Value Scales with Usage
"Usage-based pricing works exceptionally well when there's a clear correlation between usage and the value derived by MGAs," notes McKinsey's 2022 InsurTech report. When an MGA's profitability increases proportionally with their use of your platform, UBP creates natural alignment.
For example, if your software helps MGAs underwrite policies more efficiently, charging based on policy count can directly tie your revenue to the value you create.
2. When Lowering Entry Barriers is Strategic
For new MGAs or smaller players in specialized markets, enterprise pricing can be prohibitively expensive. Usage-based models can dramatically lower adoption barriers.
According to a 2023 PwC study on insurtech adoption, "MGAs cite upfront costs as the primary obstacle to technology adoption, with 67% preferring pay-as-you-go models for new software implementations."
3. When Supporting Volatile Business Cycles
Insurance markets experience natural cycles and seasonal fluctuations. UBP allows MGAs to scale their technology costs up or down with business volume, creating better cash flow alignment during market hardening or softening periods.
4. When Your Costs Scale with Customer Usage
If your own costs as a SaaS provider increase with customer usage (such as computing resources, third-party data fees, or processing costs), UBP helps maintain margins across customers of different sizes.
When Usage-Based Pricing Backfires for Insurtech SaaS
1. When Predictability Matters More Than Flexibility
MGAs, particularly those with stable, predictable business volumes, often value budget predictability. According to a Deloitte survey of insurance intermediaries, "73% of respondents ranked predictable technology costs as 'very important' or 'critical' to their financial planning."
In these cases, the variability of usage-based pricing can become a liability rather than a benefit, making subscription or tiered pricing more attractive.
2. When Usage Doesn't Correlate with Value
Some insurtech solutions deliver value that's disconnected from measurable usage metrics. For example, a risk analysis platform might provide its greatest value through occasional but critical insights rather than frequent use.
Value-based pricing approaches may be more appropriate when the core benefit isn't directly tied to quantifiable usage.
3. When Compliance Complexity Increases
For publicly-traded MGAs or those with complex regulatory requirements, usage-based pricing can create revenue recognition challenges under accounting standards like SOX (Sarbanes-Oxley). Fixed pricing with clearly defined terms often simplifies compliance.
4. When It Creates Perverse Incentives
Perhaps the most dangerous backfire scenario occurs when UBP inadvertently discourages platform usage. If MGAs perceive using more of your service as a cost rather than an investment, they may artificially limit their usage—undermining the very value your solution provides.
Striking the Right Balance: Hybrid Pricing Models
Many successful insurtech SaaS providers are finding that hybrid pricing models offer the best of both worlds. These typically include:
- Base tier subscription with usage-based components above certain thresholds
- Volume-based price fences that reduce per-unit costs as usage increases
- Value-based core pricing with usage-based add-ons for specific features
- Enterprise pricing for large MGAs with customized usage allowances
According to Forrester's 2023 SaaS Pricing Strategy Report, "72% of high-performing B2B SaaS companies now employ hybrid pricing models that combine subscription stability with usage-based alignment."
Implementation Best Practices for Insurtech SaaS Providers
If you're considering usage-based pricing for your MGA-focused SaaS solution, consider these best practices:
Start with clear value metrics: Identify which usage measurements truly correlate with customer value creation.
Implement usage caps or discounting at scale: Prevent bill shock while encouraging platform adoption.
Provide usage analytics and forecasting tools: Help MGAs predict their costs and optimize their usage patterns.
Consider gradual transitions: When moving from subscription to usage-based models, phase in the change with optional pilots.
Maintain transparency: Clearly communicate how usage is measured and billed to build trust with MGA partners.
Conclusion: The Strategic Pricing Decision
The decision between usage-based, subscription, or hybrid pricing for your insurtech MGA SaaS solution isn't merely a financial one—it's a strategic positioning choice that affects adoption, usage patterns, and ultimately, your company's growth trajectory.
The most successful implementations begin with a deep understanding of how MGAs derive value from your solution, followed by a pricing structure that aligns incentives for both parties. Whether you choose usage-based pricing or another approach, ensure your pricing reflects your technology's true value proposition in the increasingly sophisticated insurtech landscape.
For MGAs evaluating SaaS solutions, the pricing model should be considered not just for its immediate budget impact, but for how it aligns technology costs with business outcomes over the long term.