A committee of the Indian insurance regulator, IRDAI, has recommended that a facilitating environment to support deployment of technical innovation, similar to that for FinTech products, should be created for the insurance industry as well.
The committee on the regulatory sandbox approach in insurance sector in India was constituted by IRDAI last September. The committee set up under the chairmanship of IRDAI chief general manager Randip Singh Jagpal has now submitted its recommendations.
Regulatory sandbox approach
A ‘regulatory sandbox approach’ can be used to carve out a safe and conducive space to experiment with FinTech solutions, where the consequences of failure can be contained, the committee said in its report.
According to the committee, encouraging the deployment of InsurTechs will help reach new segments of customers, reduce cost of transactions, improve customer service as well as raise operational efficiencies.
A regulatory sandbox approach also facilitates innovations in the insurance sector, make insurance products more affordable and relevant to the insured and above all give a fillip to insurance penetration.
This regulatory sandbox method is expected to help companies achieve a better success rate with their products. According to industry estimates that at present, for every 10 new products that are filed, two fail to make the mark.
The committee had invited suggestions and comments from all insurance and reinsurance companies and all foreign reinsurance branches in India. The committee’s report is based on the suggestions/ inputs received from the various constituents.
The recommendations include:
The purpose of the regulatory sandbox is to foster growth and increase the pace of the most innovative companies, in a way that provides InsurTechs in particular and the FinTech sector in general with flexibility in dealing with regulatory requirements and at the same time focussing on policyholder protection.
The authority should create a core sandbox committeewith dedicated personnel to monitor and supervise digital innovation activities and provide support and advice to applicants. The committee would facilitate the rollout of experiments and seek to provide the ecosystem required for the experimentation.
The regulatory sandbox would have defined entry and eligibility criteria, boundary conditions, process flow, timelines and success factors/ exit parameters for the applicants, along with appropriate controls for protection and risk management.
At the same time, the process and criteria would be flexible to provide a conducive environment for encouraging and enabling a wide variety of experimentation, including provisions for no enforcement action orders, waivers and relaxed reporting requirements.
The committee proposes a cohort basis approach for receiving applications. The applicants would include insurers or insurance intermediaries or any other entity other than an individual having a minimum net worth of INR2.5m ($34,925) for the last three years.
The applicant can apply in any one or more of the five categories namely: insurance solicitation or distribution, insurance products, underwriting, policy and claims servicing and any other. The applicant could apply singly or jointly in one or more than one category, provided that if the category involves insurance products or underwriting, then the applicant necessarily has to partner with an insurer.
Permission shall be granted for a period of six months which can be extended for another six months. In no case can the proposal be allowed to go beyond 12 months. However, if the proposal covers 5,000 persons or obains INR5m of premium or any other parameter which the authority may specify, the proposal will be deemed to have been completed.
Strict requirements around confidentiality of policyholders’ data have been proposed.
The committee has called for comments on its report which can be submitted to IRDAI on or before 26 February 2019.