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Usage-based pricing for SaaS solutions

by Markus Pabst / 13. October 2020

Whereas the first blog article on software as a service (SaaS) examined the value, risks and advantages of SaaS solutions for insurers, this article discusses the economic aspects, especially potential billing variants. For numerous insurers, the use of external software services as part of a cloud solution is already a fixed element of their IT strategy. After all, SaaS solutions promise transparent costs and cost efficiency most of all.

But what is the best way to bill the services of an SaaS provider? What might usage-based pricing look like? What price models are there and what are the advantages of this form of pricing? This is the focal point of our article.

Fair and transparent pricing

When the decision to select a certain billing model is made, the price should factor in the interests of the insurer and those of the SaaS provider in equal measure, so as to guarantee fairness and transparency.
In contrast to the traditional licensing model with its sizeable initial investments and costs, an SaaS model only requires the customer to pay a usage-based fee.

 

In usage-based pricing, the fee is calculated based on a certain component (such as a contract, transaction or service-level agreement). Firstly, however, the insurer and SaaS provider have to clarify what the fee is to cover. Essentially, it might cover the following:

  • The set-up and customisation of the service
  • The costs of increasing or reducing the scope of use
  • Additional hardware or storage space
  • Training and support services
  • Software updates and upgrades
  • The costs of expanding access for customers and business partners of subsidiaries

 

Usage-based pricing in the form of, for example, an annual price per policy, is a fair, transparent alternative to conventional billing models and presents a number of advantages to both parties. In the case of the price per policy, for example, the only costs incurred are for contracts that are actually administrated in the system.

Usage-based pricing models

The success of SaaS solutions is driven by both flexibility and cost efficiency. It is for this very reason that customers expect flexible, clearly calculable pricing models which can be adapted to their individual requirements. Consequently, SaaS providers have developed a variety of pricing models:

  1. Per user per month or per contract per month (price per policy)
    In this pricing model, a flat monthly fee is paid for each user or administrated contract. Use of the service does not depend on the number of transactions or the number of times it is accessed.
  2. Based on the scope of features
    In this case, the aforementioned pricing model (price per policy) is expanded: The flat monthly fee depends not only on the number of users or contracts, but also on how many software features are used.
  3. Based on the number of transactions or times accessed
    The fee is per transaction, such as for each new contract generated. The pricing model can be combined with the two aforementioned variants (1 and 2).
  4. Based on service-level agreements (SLAs)
    In this model, the fee is based on SLA definitions, such as the availability of modules or performance parameters when data are accessed or values are calculated.

The costs reflect the course of business

Usage-based pricing is an innovative and exceptionally fair form of billing, and promises a wide range of benefits. The model enables the insurer to turn its IT costs into a variable linked to the course of its business. As such, the cost and investment risk decreases significantly. Knowledge of the fixed costs per contract or user (depending on the chosen pricing model) gives the insurer outstanding planning certainty over an extended period of time. Moreover, usage-based fees guarantee excellent transparency.

The choice of a suitable pricing model depends on the intended application of the cloud solution, be it for testing a new product and/or sales channel or for providing the insurer with a complete solution for a run-off scenario.

Overall, SaaS solutions are relatively simple and cost-effective to implement. The necessary initial investments are lowered or spread out, adjustments to accommodate regulatory or legal changes are quick to implement and updates and upgrades can be installed without any problems. By outsourcing IT to a specialised service provider, insurers can buy themselves time to focus more heavily on core activities that make them more competitive. A complete solution that contains all insurance operations in one also reduces the need for communications drastically, as all enquiries can be handled by a single service provider.

Instantly ready for operation with the complete solution msg.Insurance Suite from the cloud

The tried-and-tested complete solution msg.Insurance Suite is also available as a cloud solution. The integrated IT platform for insurers and pension funds is ready for immediate use as an SaaS solution without the need for a lengthy, cost-intensive IT project. It features end-to-end processing across all relevant business processes whilst complying with all legal and regulatory requirements.

The potential applications of msg.Insurance Suite range from using individual services to product or sales channel tests to adopting all insurance operations, such as in the form of a run-off platform for closed portfolios.

As part of this, msg life makes the application software available in the computing centre and takes charge of software maintenance, adaptation to regulatory requirements and technical operations. The service level, including flexible financing and payment models, can be adapted to your individual needs.

 

 

 

Application scenario: Administration of Riester contracts in a shared cloud

 

Aside from the particularities of cloud operation, the performance and flexibility of the underlying software are decisive factors of an SaaS solution. With msg.Zulagenverwaltung from the cloud, msg life delivers powerful standard software that automates the allowance processes of Riester products. The solution manages the processes between the provider, ZfA and those eligible for allowances efficiently and transparently.

msg.Zulagenverwaltung is effective as an SaaS model for small and medium-sized insurers with a Riester portfolio in particular. Additionally, msg life provides the option to combine the solution with business process outsourcing. Outsourcing time and cost-intensive case handling creates even greater potential for savings. If the insurer then also opts for a shared cloud – i.e. the solution is also used by other clients – it can cut the costs of administrating the complex allowance processes even more significantly.

How is a cloud solution implemented? What does the IT infrastructure look like?
What requirements have to be met for complete automation and industrialisation of the deployment and the operation of applications?
For answers to these and other questions, don’t miss our next blog article ‘Cloud computing – what are the technical requirements?’.