Why in News?

• The Insurance Regulatory and Development Authority of India (IRDAI) will soon allow the use of regulatory sandbox (RS) to promote new, innovative products and processes in the industry.

Regulatory Sandbox:

• A sandbox approach provides a secure environment for fintech firms to experiment with products under supervision of a regulator. It is an infrastructure that helps fintech players live test their products or solutions, before getting the necessary regulatory approvals for a mass launch, saving start-ups time and cost.
• The concept of a regulatory sandbox or innovation hub for fintech firms was mooted by a committee headed by then RBI executive director Sudarshan Sen.
• The panel submitted its report in Nov 2017 has called for a regulatory sandbox to help firms experiment with fintech solutions, where the consequences of failure can be contained and reasons for failure analysed.
• If the product appears to have the potential to be successful, it might be authorised and brought to the broader market more quickly.
• The sandbox will enable fintech companies to conduct live or virtual testing of their new products and services.

Significance:

• The RS allows the regulator, the innovators, the financial service providers (as potential deployers of the technology) and the customers (as final users) to conduct field tests to collect evidence on the benefits and risks of new financial innovations, while carefully monitoring and containing their risks.
• India accounts for approximately 6 per cent of insurance premium in Asia and around 2 per cent of the global premium volume.

IRDAI sandbox:

• For the IRDAI sandbox, an applicant should have a net worth of Rs 10 lakh and a proven financial record of at least one year.
• Companies will be allowed to test products for up to 12 months in five categories.
• It has said applicants can test products for up to a period of one year in five categories – insurance solicitation or distribution, insurance products, underwriting, policy and claims servicing.