The Insurance Regulatory and Development Authority of India (IRDAI) will soon allow the use of regulatory sandbox (RS) to promote new, innovative products and processes in the industry.
RS is an infrastructure that helps fintech players live test their products or solutions, before getting the necessary regulatory approvals for a mass launch, saving start-ups time and cost. The Reserve Bank of India is also going ahead with its plan for a similar exercise in the banking sector.
IRDAI had, in February this year, recommended setting up a regulatory sandbox to test new digital and tech-based innovations, before launching them in the market. A committee, set up by the IRDAI, has already submitted its final recommendations and will be implemented soon, IRDAI Chairman SC Khuntia said in Mumbai last week.
Data analytics is an area which insurance industry can take benefit to serve their customers. “Insurance industry generates a huge amount of data. If they analyse and make sense of this data then that can be used for pricing of product, gauging the need of customers and also to design products that customers require,” said an insurance official.
For the IRDAI sandbox, an applicant should have a net worth of Rs 10 lakh and a proven financial record of at least one year. Companies will be allowed to test products for up to 12 months in five categories. It suggested the setting up of a core sandbox committee with dedicated personnel to monitor and supervise the digital innovations and also facilitate the roll-out of experiments and to provide the ecosystem required for the experimentation.
It has said applicants can test products for up to a period of one year in five categories – insurance solicitation or distribution, insurance products, underwriting, policy and claims servicing. “The 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,” the report said. However, if the proposal covers 5,000 persons or completes Rs 50 lakh of premium or any other parameter specified by the IRDAI, the proposal will be considered completed.
“Applicants would include insurers or insurance intermediaries or any other entity other than an individual having a minimum net worth of Rs 25 lakh for the last three years,” said the report, adding that if the category involves insurance product or underwriting, then the applicant necessarily has to partner with an insurer.
The committee has also recommended strict requirements of confidentiality to protect the data of policyholders, and has proposed defined entry and eligibility criteria, boundary conditions, process flow, timelines, success factors and exit parameters for the applicants, along with appropriate controls for protection and risk management. The RBI recently put out a draft enabling framework for regulatory sandbox (RS) for fintechs, including an indicative list of relevant products and services and fit-and-proper criteria for participants in the RS.
“The RS allows the regulator, the innovators, the financial service providers (as potential deployers of the technology) and the customers (as final users) to conduct field tests to collect evidence on the benefits and risks of new financial innovations, while carefully monitoring and containing their risks,” the RBI said in the draft, which refers to each end-to-end sandbox process as a cohort.
India accounts for approximately 6 per cent of insurance premium in Asia and around 2 per cent of the global premium volume.