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Sandbox concept plays out overseas as United States looks on


The United Kingdom and other countries are playing in the insurtech sandbox, but U.S. regulators may be reluctant to follow suit.

The sandbox concept, which is designed to allow insurtech companies to experiment with new ideas for products and solutions through a supervised process with regulatory requirements waived in some situations to facilitate innovation, has been widely promoted overseas, mainly by the United Kingdom Financial Conduct Authority.

But many U.S. regulators and stakeholders are skeptical about the value and necessity of the sandbox, including whether waiving rules is necessary to foster innovation or unfair to incumbent insurers, and even whether the sandbox concept could be effective in a country with a state-based system of insurance regulation.

“We’ve been asked by a number of the regulated entities, insurers or new companies, to consider sandbox legislation,” said Ray Farmer, director of the South Carolina Department of Insurance in Columbia. “I do not think my state needs any legislation to be creative, to be innovative.”

The sandbox is “the million-dollar question,” said Julie Sherlock, head of insurance strategy for insurtech development platform Boost Insurance USA Inc. in New York. “I’m not convinced yet that sandboxes are what we need. I understand the intent: Let’s have a safe haven for these insurtechs. Let’s protect the consumers in case some of them fail. Let’s waive some of these complicated regulations to get them out there. But … when do you ‘graduate’? What exactly are all the things that we’re trying to measure and test? I’m not sure that there is a firm answer on that yet.”

“In the rush to allow insurtech, you do have to be careful that you don’t create an unlevel playing field and therefore give an unfair advantage to insurtech companies,” said Stephen Clarke, vice president of government relations for Jersey City, New Jersey-based Verisk Analytics Inc. “During the test period, it’s fine, but if waivers are granted for certain requirements, there has to be an exit plan so that all regulated entities play by the same rules at the end of the day.”

Paul Worthington, London-based international lead of FCA Innovate, which has received more than 200 applications to its sandbox to date, including several by insurtech companies, was asked at the National Association of Insurance Commissioners’ summer meeting in Boston in August what happens at the end of the sandbox period. Firms are required to issue a final report to the FCA that builds on the metrics and data they have been tracking throughout the process, highlights key findings and how the results measure up against the original test plan criteria and the FCA will then make a call on licensing, he said, according to meeting minutes. While more than 90% of the firms have gone on to release their products in the market, some realize they have to “pivot” their model to achieve what they set out to do, with a small number that just stop operations entirely, he said.

Startup companies can end up spending all their money participating in a sandbox and pass muster with the regulator, but then have no resources for moving forward, said Ben Seessel, a Hartford, Connecticut-based shareholder with Carlton Fields Jorden Burt PA.

“I’m sort of skeptical of the sandbox concept in this country,” he said. “In other countries like the UK, if you pass what the regulator wants, then you can market through the whole country.”

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