A regulatory sandbox will help companies manage risk during the testing phase, which will enable more innovative ideas to be tested in the market, said the insurance regulator on Friday.
If such an idea becomes successful, it will be introduced in the market, said Sujay Banarji, member (distribution) at the Insurance Regulatory and Development Authority of India (Irdai).
Earlier, because of regulatory uncertainty, some innovations were abandoned at an early stage and never got tested in the market.
In the insurance sector, there is a need to maintain a healthy balance between growth in the industry and protecting the customers and providing enough headroom for companies to develop and implement the latest innovations.
“For regulators, the sandbox affords a valuable learning experience, allowing them to keep pace with technological advancements and new business models that may not conveniently fit into the existing regulatory framework. It is therefore a win-win position for everyone,” Banarji said.
Irdai will start receiving application from insurance companies such as InsurTech (technology-led insurance firms) and others from September 15 on product ideas under the sandbox approach. An expert panel in February suggested Irdai to set up a core sandbox committee to promote digital innovation in the sector while safeguarding the interests of policyholders.
A sandbox approach means experimenting and learning before finally adopting a technology or system. This approach helps contain the impact of failures. The core sandbox structure is meant to facilitate the rollout of the experiments and seeks to provide the ecosystem required for the experimentation.
The purpose of the regulatory sandbox is to foster growth and increase the pace of the most innovative companies, in a way that provides InsurTech in particular and the fintech sector as a whole with flexibility in dealing with regulatory requirements and at the same time focusing on policyholder protection.
Mostly, regulations are regulatory-authority driven wherein the guidelines are based on experiences and assumptions. Generally, these regulations are tested only after they are implemented. But in the case of the sandbox approach, the innovative ideas first get tested and then regulatory guidelines are made out of them, Banarji added.