How to Succeed In Scaling Your Embedded Insurance Product

Editor's note: At Tidemark, we’ve been arguing for years that a Vertical SaaS Vendor (VSV) should seek to first own the control point and then expand to adjacent products that build on that privileged position. Those expansions could include payments, payroll, or insurance.

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However, what is challenging is actually executing this strategy. Sure, you can just use someone’s API to slap an embedded product on top of your control point, but doing that results in minimal difference to a company's growth prospects. It takes real thought to launch the product, determine when/how to involve sales, etc. 

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We heard from multiple founders that they want more detail on how to implement insurance, so we’ve brought in a guest writer to explain how it all works. Cole Riccardi is the founder and CEO of Authentic, an embedded insurance platform that lets a VSV easily build and sell insurance to its merchants. Authentic has helped companies like Mindbody launch insurance offerings. In this piece, Cole discusses what’s required to build a successful insurance expansion product sales motion and what kind of revenue a VSV can expect from adding Authentic’s product. Please enjoy! 

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How to Succeed In Scaling Your Embedded Insurance Product

I have seen many VSVs make mistakes when launching insurance, leading to significant delays or even outright failures. You have to get the little things right to get merchants excited about the product. After successfully completing many insurance product launches at Authentic, we have found that success begins with the sales process. 

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Sales

Because embedded fintech products like insurance may require merchants to change some of their internal HR processes, they are not easy lifts. You have to take a multi-pronged sales approach. You start not by asking a VSV’s sales reps to immediately sell the new product; instead, you lead with product-led growth and traditional marketing. Sales-led growth can be very effective, but we like to prove end customer demand, share the testimonials with sales reps, and work those into sales motions. So, to start, we do a combination of product and marketing-led initiatives.

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Product-led Growth (PLG): At Authentic, we advise our VSV partners to start on the PLG side. We’ll embed our widget within the VSV platform and drive traffic to the insurance offering. This usually involves displaying a banner ad on a well-trafficked part of the customer-facing UI. The more targeted that banner ad, the better. We prefer to conduct a pre-underwriting exercise so we can target specific customers with personalized quotes versus announcing a generic offering. With a targeted CTA, you can boost performance and increase the likelihood of being able to justify a larger marketing push.

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Marketing-led Growth: Once we’ve decided where the offering will live on the platform, we’ll run an email campaign to drive additional awareness of the new offering. The campaign will initially be an announcement, with subsequent emails touching on the overall value proposition or (ideally) the value proposition for specific customer segments. We can run a targeted email campaign for multi-location business owners, highlighting the ability to manage insurance in one online portal for the entire operation. 

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Community-led Growth: After initial users have a positive insurance experience (cheaper policy, better purchasing/management experience, or both), we encourage them to share it with other similar businesses within their community. Some SaaS partners are better suited for this than others. For example, several companies we work with have Facebook groups where users interact and share learnings with one another. We’ve seen significant traction when a fellow small business owner directs his or her community toward the offering. Building social proof for your product and creating word-of-mouth or referral motions can be very powerful.

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Sales-led Growth: After we’ve run through the options above, we should have enough proof of interest to justify taking an account executive’s (AE’s) time and focus. Insurance is a bit trickier than other extension products because U.S. regulations don't allow unlicensed sales reps to be directly compensated for selling insurance policies. We can equip partners who are building and selling insurance with sales playbooks, compensation and quota strategies, and other best practices tailored to the VSV we are partnering with. Some common ones include quota relief or a bonus based on the number of insurance quotes. 

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Typically, we’ve seen that it is much easier for a VSV to sell embedded products to new customers than to upsell existing customers on the platform. New customers will already be in a rip-and-replace mindset, looking to remake their entire tech stack, including the embedded products. Some new customers will also be “newly born” companies that are approaching the purchasing decision with a completely clean slate.

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Once you have the GTM motion planned, you need to move on to the tricky stuff: pricing. 

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Pricing

One of the primary challenges of an insurance expansion product is determining the right pricing strategy. How you choose to bundle (or not) with the primary offering can significantly impact your attach rates. Insurance has a few nuances that I’ll run through using the example of one of our customers, Mindbody:

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Building pricing from scratch: It’s incredibly challenging to create an online insurance pricing engine that works across 50 states, multiple locations, and multiple classes. Often, a vendor will copy a set of rates from one or multiple carriers and then build the infrastructure to adjust those rates quickly as the underwriting model improves. 

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Insurance pricing variables: Usually, platforms have most of the data needed to underwrite small commercial risks. These key variables include revenue, geography, employee count/payroll, and class code. These data points can give a quote “estimate” for small businesses. Then, we need to confirm information depending on the class code. For example, for gyms, we would want to confirm whether or not they have a swimming pool, climbing wall, etc. Lastly, we can add additional products to the core offering. A gym might want nutrition and supplement coverage for anything being sold at their nutrition bar. All of this either requires some form of sales support or complicated forms for merchants to fill out, adding to the complexity.

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Underwriting in the partnerships channel: Misclassification and fraud are two of the biggest risks in the small business insurance space. We love the partnerships channel as it naturally mitigates these two risks (especially vertical channel partnerships). For example, if you create a “Mindbody Insurance” product for all of the gyms on their platform, 1) we’ll have certainty that these are actually gyms, and 2) if they’ve already bought Mindbody, then it’s very unlikely that they are fraudsters who are looking to commit insurance fraud by buying Mindbody’s new insurance product. Partnerships add a natural layer of friction that helps deter fraud.

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GTM Best Practices

Strategy is a game of tradeoffs—the strategy around embedding extension products follows the same dynamic. You have to make tradeoffs between speed, resources, and quality. 

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One of the biggest questions is about integration. If you want to embed insurance products that require data, you’ll need to offer API access or other forms of integration. For our VSV partners, we offer a crawl/walk/run approach to embedding insurance. If a platform wants to set up data sharing via an API when an SMB clicks through to the insurance application, some engineering effort will be required on its end. However, if partners have no engineering availability, simple solutions like custom landing pages can cover the gap until resources are freed up (see example here). 

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The mistake I often see is overinvesting in the product and underinvesting in the GTM. Convincing sales reps to sell a new, unproven product is one part incentive structure, one part witchcraft. It’s a very hard balance to strike. Usually, to get live fast, we launch with marketing initiatives that don’t require sales effort and build towards incorporating them over time once reps see that there is money to be made.

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Once a VSV moves beyond the more typical software tasks of CRM or back-office, there tends to be more regulatory capture. Insurance is a bear in this department—each state will have its own training, licensing, and coverage requirements. As you consider the tradeoffs between build, buy, or partner for extend products, keep insurance options in mind. Authentic is set up to handle all insurance servicing. It’s difficult for partners to triage what needs to be handled by a licensed rep, so we often take on the servicing burden. 

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Again, the details matter. Once we start bringing on a VSV’s account executives to sell to its merchants, we train the teams on how to appropriately pass the questions over to Authentic once things require insurance knowledge or licensing. 

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With all tradeoffs, you need to know the reward. Let’s dig into what it looks like in insurance. 

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Insurance ARPU Considerations

We’ve heard that one area where there’s a real lack of clarity is the ROI calculus of launching an insurance product. Here’s what it can look like:

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Depending on the risk profile, small commercial policies can range between $1,000 - $20,000. A policy for a small salon would cost closer to $1,000, whereas one for a fine dining restaurant could cost more than $20,000. Typically, the embedded economics will be between 5-25% of the premium back to the partner platform (Authentic being at the upper end of this range). For example, if you have a $5,000 policy and earn 15% of that premium as the platform, you will have $750 per new insurance policy sold. If your software ARPU is $3,000-5,000, you can see an ARPU lift of 15-25%.

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In the first few months of launching, we’ve consistently seen a >3% start-to-purchase rate for insurance across several partners. We’re driving towards a 10% goal over 12-24 months within each of these SaaS partners, which we believe is attainable. 

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As with all software, digitizing and automating workflows that used to be paper-based can come with a new set of tradeoffs. For instance, to cancel current coverage, carriers usually don’t charge fees or penalize small businesses for canceling. However, there’s friction in the process (sending an email to your carrier with a signed notice of cancellation, etc.), and it can take time to get your money back by mail. This means that many providers fall into the trap of over-indexing on usage rates from previous paradigms of workflow. We have found that for VSVs, the best practice is to experiment to see your cancellation rates because industry standards may be too high or low. Authentic has also built “automated switching” features into the platform to assist with switching friction.  

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Conclusion

Vertical SaaS Vendors can effectively integrate insurance into their offerings by leveraging product-led and marketing-led growth, tailoring pricing to the industry's specific needs, and finding the right balance between speed, resources, and quality in the go-to-market strategy. Although this piece focuses on insurance, the tips provided can also be used to make launches of other expansion products successful.

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