Irdai-proposed insurance sandbox to give a leg up to customer experience

  • Sandbox will allow need-based customization of products
  • Applicant's net worth should be at least 10 lakh

The Insurance Regulatory and Development Authority of India (Irdai) on 18 May came out with draft regulations for the creation of a regulatory sandbox to allow a conducive environment for insurtech and fintech companies to carry innovation in the insurance space. The draft has been placed for public and stakeholder comments till 31 May. Other financial sector regulators such as the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) have also announced a sandbox to enable startups and companies to bring out innovative products and processes.

“Insurance adoption is extremely low in the country. Our diverse population needs customized solutions. A regulatory sandbox helps in creating and testing such solutions in a controlled environment," said Abhishek Bondia, principal officer and managing director, SecureNow.in, an insurance aggregator.

A sandbox is a workspace where tech-driven companies can ideate, experiment, test and innovate financial products. “There are no provisions in the existing regulatory framework that deal with experimentation within a controlled environment the way it’s proposed in the draft regulations, except to a certain extent by pilot products under health insurance regulations," said a senior executive at an insurance company, who did not want to be named.

Objectives


The Irdai draft said that an innovation sandbox will strike a balance between the sector’s development and protection of the interests of policyholders. The regulator said, if required, it will also relax one or more provisions of the existing regulations to facilitate the creation of the sandbox environment.

The executive mentioned earlier said the sandbox propositions may not fall under the scope of the existing regulations and some existing regulatory provisions may need to be relaxed. However, the maximum period for which the relaxation is granted will not exceed one year. “The experiments are allowed for an initial period of six months, with further extension of another six months. Relaxation of regulatory provision should not extend beyond the experiment period," said Bondia.

The Irdai draft also lists the procedures for which the sandbox can be used. Applicants can seek permission if they wish to bring in any changes in any of the processes listed by the regulator. The processes include categories of application such as insurance solicitation and distribution, insurance products, underwriting, policy and claims servicing, and details of filing an application. It also lays down the conditions for granting permission to participate in the sandbox, period of permission (six months), conditions for revocation of permission, the extension of period of permission (another six months), internal monitoring, review and evaluation of systems and controls, review of policy approval by Irdai, and conclusion of the proposal.

Irdai, however, has not clarified what kind of and how many experiments will be permitted. “It is unclear how many experiments will be allowed, and the selection process," said Bondia, adding he would suggest more number of experiments be allowed.

What it means for you


The draft highlights four areas— distribution, products, underwriting and claims—where sandbox can bring in innovation in terms of customization and new developments. “Introduction of new products that are not currently available may be possible. For example, a product for someone with autism," said Bondia. In terms of claims, currently it takes about a month or more for a policyholder to get reimbursed; this can be addressed through experimentation under sandbox.

When it comes to distribution, sachet-sized policies could be made available on a larger scale so that access to affordable insurance increases. Documentation could also be reduced by bringing in faster KYC (know your client) methods.

“Sandbox could facilitate innovation that can securely experiment with ideas ranging from solving un-met customer expectations, raising efficiency levels in processes, or in managing risk better," said Meera Srinivasan, executive director, insurance, global business services, IBM India. “It would be exciting to see innovations that focus on paving the way to under-served segments on the one hand and pioneer newer channel ecosystems on the other."

Who can apply?

The applicant can be an insurance company, agent, broker or even an individual and must have a minimum net worth of 10 lakh and should have a standing of at least a year. Further changes may be expected based on the feedback.

A regulatory sandbox will pave the way for quicker adoption of technological developments and enhance customer experience.

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