Bermuda has been at the forefront of providing innovative solutions in the insurance industry and boasts the largest Insurance Linked Securities (ILS) and captive sectors in the world. Leveraging Bermuda's reputation as a centre of excellence for innovation in a sound regulatory environment, the Bermuda Monetary Authority (BMA) is now launching two parallel innovation tracks: an insurance regulatory sandbox (Sandbox) and an Innovation Hub, both initially targeted at insurance technology (InsurTech) companies. The BMA released the Consultation Paper on Insurance Regulatory Sandbox in April 2018.
InsurTech Sandbox
What is a sandbox?
The Sandbox is a space where companies can test new technologies and offer innovative products, services and delivery mechanisms to a limited number of customers in a controlled environment and for a limited period of time.
How can you get involved?
The Sandbox is for companies looking to be licenced as insurance entities under section 4 (Regular Insurer) or section 10 (Insurance Intermediaries) of the Insurance Act 1978. The BMA encourages using a separately incorporated company. The BMA will start accepting applications to the Sandbox from 1 July 2018.
How does the process work?
- Application:
The application includes a cover letter, constitutional documents, net worth statements and a business plan verifying that the company satisfies the BMA's eligibility criteria. The eligibility criteria used in evaluating the company includes, among other things, that (i) the proposed product, service or business model should be new or use existing technology in a different way, (ii) the company should have conducted research and due diligence, (iii) the company should clearly define objectives for testing, (iv) the company should demonstrate its understanding and assessment of associated risks and their mitigation and (v) the company should have the intention, ability and resources to deploy the proposed product, service or distribution channel upon successful testing.
- Review:
Having reviewed a company's proposal, the BMA would determine the legislative and regulatory requirements that would be modified for the duration of the Sandbox testing. The BMA will consider each application on a case-by-case basis and will typically respond within two weeks of the initial contact and then commence the application process.
The following two tables outline which requirements may or may not be potentially modified in the Sandbox:
- Proof of concept i.e. the
Sandbox:
Upon final approval, the company will be assigned a Principal Contact (BMA staff member) to assist throughout the duration of the Sandbox. A company will be assigned a temporary sandbox licence. In the Sandbox there is one licence available for long term insurers and one licence available for general business insurers; there are no special classifications. Sandbox licences are designated by the letter 'I' and are ILT, IGB, IM, IA and IB for long term insurers, general business insurers, insurance managers, agents and brokers, respectively.
- Deployment:
Upon completion of the proof-of-concept phase, the company must submit a final report to the BMA on the outcomes of the testing including client feedback on the products, services and delivery mechanisms. After an in depth consideration of the company's business model and any other legal and regulatory requirements, the company will be relicensed in accordance with the existing insurance company classes.
Innovation Hub
The Innovation Hub is a platform for exchanging ideas and information; it facilitates dialogue between the BMA and market participants. This space is intended for activities that are not directly regulated by the BMA or where a company is still developing its thoughts and ideas and not yet prepared for the Sandbox.
Maintaining a Sound and Relevant Regulatory Environment
A list of the companies approved to operate under the Sandbox will be posted on the BMA website for transparency to the public.
As with all companies operating within Bermuda, companies testing in the Sandbox must conduct business in a prudent manner and will be subject to Bermuda's robust regulatory environment. This includes compliance with the Anti-Money Laundering and Anti-Terrorist Financing as provided in the Proceeds of Crime Act 1997, the Anti-Terrorism (Financial and Other Measures) Act 2004, the Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing) Regulations 2008 and any other international sanctions in force in Bermuda. The Sandbox will not be allowed to be used as a means of circumventing legal and regulatory requirements or to benefit from regulatory arbitrage.
Continued Innovation
The BMA will use the experience arising from the Sandbox and Innovation Hub to update the framework when required to avoid unnecessary discouragement of innovation while maintaining adequate policyholder protection.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
