IRDAI Regulatory Sandbox Overview

Regulators throughout the world must balance protecting consumer interests with encouraging innovation without being overly restrictive. Many nations have chosen a "Regulatory Sandbox"-based strategy to address this issue, in which the regulator closely collaborates with up-and-coming companies. The regulatory sandboxes in India are still in the development stage, and authorities are still fine-tuning their regulations. The IRDAI Regulatory Sandbox is essential to the expansion, investment, and adoption of innovation in the insurance sector, protecting consumer interests in the process. Indian regulators intend to encourage the development of new goods and services by creating sandboxes for each industry.

What is IRDAI Regulatory Sandbox?

An environment known as a "sandbox" serves as a testing ground for new business models, procedures, and applications that may not necessarily be entirely covered by or fully adhere to existing regulations. Simply put, the objective of the IRDAI Regulatory Sandbox is to enable experiments to determine whether product innovations are viable and marketable. The participating businesses in the regulatory sandbox typically offer their innovations to a small number of customers for a brief period of time in a protected environment without being concerned about specific restrictions and penalties. The sandbox aids the regulator in creating regulations for technological advancement, safeguarding consumer interests, and keeping up with industry innovations.

Additionally, it assists Insure Tech companies in reducing their marketing time and reducing risk in determining the essential legal requirements and other licensing issues. The sandbox also serves to minimize regulatory ambiguity, making it simpler to obtain investment. As a result, Fintech companies may concentrate more on the technological aspects and worry less about the regulations, while the regulator can carefully watch and evaluate sector advances. Collaboration is encouraged, which advances the interests of Fintech firms, regulators, and end customers.

In accordance with the IRDAI (Regulatory Sandbox) Regulations, 2019, the Insurance Regulatory and Development Authority of India introduced the IRDAI Regulatory Sandbox on July 26, 2019.

Benefits of Participating in IRDAI Regulatory Sandbox

1. The sandbox methodology allows different market participants to test their innovations in real-world settings where regulation may not exist or may be too restrictive for the company.
2. The market participants can determine the feasibility of their products using this approach without having to invest in more costly and complex product launches.
3. The IRDAI Regulatory Sandbox enables market participants to quickly and economically launch their innovations, business strategies, and products/services.
4. This approach also enables market regulators to determine whether existing regulations should be altered to adapt to advancements.

Who can apply for IRDAI Regulatory Sandbox?

The following entities are eligible to apply for IRDAI Regulatory Sandbox:

1. An Insurance Company
2. An Insurance Intermediary such as Insurance Broker, Insurance Web Aggregator, Insurance Marketing Firm, Corporate Agent, etc.
3. Any Person except for an individual who has a minimum net worth of at least INR 10 lakh during the previous financial year.
4. Any other entity as recognised by the IRDAI.

Such eligible entity may apply for any one or more of the following categories for the IRDAI Regulatory Sandbox:

• Insurance Solicitation or Distribution
• Insurance Products
• Insurance Underwriting
• Insurance Policy and Claims Servicing
• Any other such category as recognised for innovation and advancement of the insurance sector of the country.

Conditions Related to Grant of Permission for IRDAI Regulatory Sandbox

An application for permission under the IRDAI regulatory sandbox will only be accepted if it meets the following conditions:

1. The product or service promotes innovation that is effective for insurance in India.
2. The insurance product or innovation serves consumer interests.
3. It fosters the industry's systematic expansion.
4. It has the potential to improve insurance penetration in the nation.
5. It satisfies any additional standards set down by the IRDAI Authority.

Process of IRDAI Regulatory Sandbox

1. Applicant submits the proposal laying down the functions, technology, market base, operational strategy, expected outcomes, etc., of the innovation.
2. IRDAI then assesses the application to either accept or reject the proposal, informing the applicant whether the proposal is suitable for sandbox testing or not.
3. Sandbox application is approved or rejected based on its viability, associated risks and implications.
4. The application is either granted an extension or fails.
5. The application proceeds to the deployment stage for the broader market base.

The IRDAI regulation's deadline is akin to the ones outlined in the RBI framework. Because of this, the IRDAI regulation also sets a 6-month testing permission period. Contrary to the RBI framework, the IRDAI has stipulated that a company may be given an utmost of a 6-month extension to complete the test. By extension, this indicates that all testing procedures must be concluded within a year.

The Authority would periodically monitor the status of the proposal through the single point of contact (SPOC). Additionally, the Authority may use suggestions and other methods of guidance to assist the application as it sees appropriate. However, the applicant will be entirely accountable for any actions related to the proposal and will be expected to fulfil all liabilities, including any legal restrictions.

Extension of Permission

The IRDAI regulatory sandbox application may be granted an extension under the following circumstances and procedures:

1. The Authority may be requested to grant an extension of time if the applicant requests one towards the end of the six-month period. The request must include an assessment of the proposal's progress to date and an explanation of why the applicant needs the extension.
2. The Authority's Chairperson may give the applicant's request due consideration.
3. The applicant will not, under any circumstances, be given an extension of more than six months to perform the project.
4. For the duration of the extension period, the provision relating to the withdrawal of prior approval, as indicated in Regulation 7, shall apply mutatis mutandis.

Revocation of Sandbox Permission

If the Chairperson of the Authority believes that the activities being carried out under the IRDAI Regulatory Sandbox do not comply with the requirements stated in Regulation 6; or violate the terms of the Insurance Act of 1938, the Insurance Regulatory and Development Authority Act of 1999, and other applicable laws, then it may revoke the permission already granted at any time. However, such permission may only be revoked as long as the applicant is given a chance to be heard prior to the permit being revoked.

Post-Permission Compliance by Applicant

After the grant of permission, the applicant shall comply with the following compliance requirements:

After receiving approval, the applicant must make sure that

1. The system's integrity is always maintained.
2. Policyholder data confidentiality is upheld.
3. Appropriate internal mechanisms for analysing, monitoring, and evaluating its controls, systems, procedures, and safeguards are established.
4. The applicant must notify the Authority right away if there is any divergence from the proposal's execution.

Completion of IRDAI regulatory Sandbox proposal

After the allotted time or size of the proposal has passed, the applicant must provide a report to the Authority within 15 days outlining how the proposal met its goals, as well as any input from policyholders and any other information the Authority may require. A plan of action detailing how the proposal will be integrated into the current regulatory framework must also be submitted by the applicant.

The Authority may grant permission to the applicant to adopt the proposal under the current regulatory framework, which includes provisions of the Insurance Act, 1938, and the Insurance Regulatory and Development Authority Act, 1999, in addition to being satisfied that the objectives of the IRDAI Regulatory Sandbox proposal have been met after reviewing the applicant's report. All laws, rules, directives, circulars, etc., shall take effect on the date on which the existing regulatory framework is adopted.

The applicant may be instructed to stop the proposal when the Chairperson of the Authority reviews the applicant's report and determines that the objectives of the proposal are not being satisfied.

If the applicant believes that the project will not be able to achieve the stated goal, they may also request the proposal be terminated early. Subject to any conditions that it deems appropriate, the Authority's Chairperson will evaluate the request on its merits and advise the applicant accordingly.

The applicant shall be responsible for erasing all participant personal data and providing written confirmation to the Authority to that effect. The Authority's Chairperson reserves the right to decide whether or not to approve the IRDAI Regulatory Sandbox proposal's continuance.