IRDAI (Regulatory Sandbox) Regulations, 2019

Introduction

To carve out a safe and useful space to experiment with Fin-Tech solutions, and where the consequences of failure can be contained. In light of the same, the Insurance Regulatory and Development Authority of India (IRDAI) notified IRDAI (Regulatory Sandbox) Regulations, 2019 to create a Regulatory Sandbox (RS) whose objective is to foster growth and increase the pace of the most innovative companies, in a way that provides Insurtech with flexibility in dealing with regulatory requirements and at the same time focusing on policyholder protection.

A RS usually refers to live testing of new products or services in a controlled environment for which IRDAI may or may not permit certain regulatory relaxations for the limited purpose of the testing. The RS allows the IRDAI, the innovators, the insurance service providers and the customers to conduct field tests to collect evidence on the benefits and risks of new Insurtech innovations, while carefully monitoring and containing their risks. It can provide a structured place for the IRDAI to engage with the ecosystem and to develop innovation-enabling regulations that facilitate delivery of relevant, low-cost Insurance products.

IRDAI has invited applications from Companies for the Regulatory Sandbox within a window from 15th September 2019 and shall receive applications till 14th October 2019.

Insurance Regulatory Sandbox Development

September 2018: 10 member committee was formed by IRDAI to look into the concept of RS in the country and prepare consultation paper.

May 2019: In reference with above said committee report, IRDAI issued Exposure Draft on IRDAI (Regulatory Sandbox) Regulations, 2019 for taking comments from stakeholder.

August 2019: IRDAI by press release issued and notified IRDAI (Regulatory Sandbox) Regulations, 2019 with effect from 26th July 2019 and also issued guidelines on the operations of the RS outlining the procedure to be followed in implementing the “Innovation in Insurance” programme.

Key Highlights of Regulations Notified by IRDAI:

♣ The regulations defines:

a) An applicant (insurer or insurance intermediary or a person other than individual having a networth of Rs 10 lakhs and a standing of one financial year);

b) Regulatory sandbox; and

c) The sandbox environment

♣ The Regulations also lays down the procedure for seeking permission for promoting innovation in insurance in India which includes:

i) The categories of application (insurance solicitation & distribution, insurance products, underwriting, policy and claims servicing);

ii) The details of filing of application (cohort approach);

iii) The conditions for grant of permission;

iv) The period of permission 6 months;

v) The conditions for revocation of permission;

vi) The extension of period of permission (6 months);

vii) Internal monitoring, review and evaluation of systems and controls;

viii) Review of proposal approved by the Authority;

ix) Conclusion of proposal; and

x) Data protection provisions for customers

The Regulations also provide for relaxation of one or more provisions of any Regulations to the applicant subject to the conditions given above. The maximum period for which the relaxation can be granted is one year. It also allows issuance of necessary guidelines relating to operational issues pertaining to RS.

Regulatory Sandbox: Benefits

  • Insurer improves their understanding of how new Insurance technologies might work, which helps them to appropriately integrate such new technologies with their business plans.
  • Insurance Companies can improve their understanding of regulations that govern their offerings and shape their products accordingly.
  • Feedback from customers, as end users, educates both the regulator and the innovator as to what costs and benefits might accrue to customers from these innovations.
  • Companies can test the product’s viability without the need for a larger and more expensive roll-out. If the product appears to have the potential to be successful, the product might then be authorized and brought to the broader market more quickly. If any concerns arise, during the sandbox period, appropriate modifications can be made before the product is launched in the broader market.
  • Areas that can potentially get a thrust from the RS include microfinance, innovative small savings and micro-insurance products and mobile insurance.
  • by providing a structured and institutionalized environment for evidence-based regulatory decision-making, the dependence of the regulator on industry/stakeholder consultations only is correspondingly reduced.
  • RS could lead to better outcomes for consumers through an increased range of products and services, reduced costs and improved access to insurance services.

Regulatory Sandbox: Risks and Limitations

  • Innovators may lose some flexibility and time in going through the RS process (but running the sandbox program in a time-bound manner at each of its stages can mitigate this risk).
  • Case-by-case bespoke authorizations and regulatory relaxations can involve time and discretional judgements (this risk may be addressed by handling applications in a transparent manner and following well-defined principles in decision-making).
  • Post-sandbox testing, a successful experimenter may still require regulatory approvals before the product/services/technology can be permitted for wider application.
  • Regulators can potentially face some legal issues, such as those relating to consumer losses in case of failed experimentation or from competitors who are outside the RS, especially those whose applications have been/may be rejected. These, however, may not have much legal ground if the RS framework and processes are transparent and have clear entry and exit criteria. Upfront clarity that liability for customer or business risks shall devolve on the entity entering the RS will be important in this context.

Detailed Regulation and guidlines can be accessed through link ( https://www.irdai.gov.in/ADMINCMS/cms/frmwhats_List.aspx )

Writer: Akash Vij

Disclaimer: This document should not be treated as a manual. The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility for the consequences of use of such information therefore users of this information are expected to refer to the relevant existing provisions of applicable legal acts, law, rules, regulations and notifications. The user of the information agrees that the information is not a professional advice and is subject to change without notice. Source of information is relevant regulations This is only a knowledge sharing initiative and writer do not intend to solicit any business or profession. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION.

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Name: Akash Vij
Qualification: CS
Company: N/A
Location: New Delhi, IN
Member Since: 24 Aug 2019 | Total Posts: 1

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