Insurance Regulatory Sandbox Consultation Paper with Draft Bill (April 2018)

Summary

This is a Bermuda Monetary Authority (BMA) consultation paper, issued April 2018, proposing an Insurance Regulatory Sandbox and companion Innovation Hub for InsurTech companies, together with a draft bill to amend the Insurance Act 1978 to create new categories of 'innovative insurer' and 'innovative intermediary'. It invites industry comment and sets out how the sandbox would work once launched.

• Purpose: Allows companies intending to be licensed under Section 4 (Regular Insurers) or Section 10 (Insurance Intermediaries) of the Insurance Act 1978 to test new technologies, products, services and delivery mechanisms with a limited number of clients for a limited period, under modified regulatory requirements agreed with the BMA.
• Eligibility: Applicants must show the solution is innovative or novel, that due diligence and risk mitigation have been undertaken, have clear testing objectives, and demonstrate an exit/transition strategy and ability to meet full licensing requirements on graduation.
• Application process: Companies apply to the Licensing and Authorisations Department with an application fee of $6,180; the BMA reviews and sets testing conditions (duration, safeguards, reporting), typically responding within two weeks.
• Proof of concept: Testing phase normally runs 6 to 12 months, during which the company must notify clients they are dealing with a sandbox entity, obtain written client acknowledgment of risks, maintain a complaints log, and report to the BMA as agreed.
• Deployment/exit: At the end of testing the company submits a final report; on approval it is re-licensed under the relevant full insurance licence class. Extensions require an application and fee at least one month before expiry; the BMA can discontinue participation for breach, misrepresentation, unviable results or significant unmitigated risk.
• AML/sanctions: Sandbox participants must comply with the Proceeds of Crime Act 1997, the Anti-Terrorism (Financial and Other Measures) Act 2004, related AML/ATF regulations, and applicable international sanctions.
• Draft bill amendments: Proposes amendments to the Insurance Act 1978 and related regulations to formally define 'innovative insurer'/'innovative intermediary', impose a $120,000 paid-up share capital requirement, allow BMA-directed appointment of loss reserve specialists and actuaries, require statutory financial statements and record-keeping in Bermuda, restrict capital reduction and appeal rights, and adjust fees under the Fourth Schedule of the BMA Act 1969.

As a consultation paper with an accompanying draft bill, none of these measures are yet in force; they describe the BMA's proposed sandbox framework and legislative changes pending feedback and enactment.

Key obligations

• Sandbox applicants must submit an application to the BMA's Licensing and Authorisations Department together with a fee of $6,180
• Sandbox participants must comply with AML/ATF legislation (Proceeds of Crime Act 1997, Anti-Terrorism (Financial and Other Measures) Act 2004, related regulations) and applicable sanctions
• During proof-of-concept, companies must notify clients that products/services are being tested in the sandbox and obtain written acknowledgment that clients understand the associated risks
• Companies must maintain a client complaints log available to the Authority during testing
• Any material changes to agreed testing parameters or requests to extend the testing period must be approved by the Authority
• Companies must submit a final report to the Authority on the outcomes of proof-of-concept testing, including client feedback, before deployment
• To extend the sandbox period, a company must apply and pay the applicable extension fee at least one month before the sandbox period expires
• On exiting the sandbox (voluntarily or otherwise), the company must ensure existing obligations to policyholders are fully fulfilled
• Industry comments on the consultation paper must be submitted to innovate@bma.bm

Applies to

InsurTech companies seeking insurance licences, Regular Insurers (Section 4 applicants), Insurance Intermediaries (Section 10 applicants), innovative insurers, innovative intermediaries, insurance managers, insurance brokers, insurance agents

Deadlines

• not later than 15th May, 2018: Deadline for industry comments on the consultation paper
• 1st July 2018: Date from which the Authority will start accepting sandbox applications
• at the latest one month before the expiration of the sandbox period: Deadline for a company to apply for an extension of its sandbox period
• typically between six and twelve months: Expected duration of the proof-of-concept testing phase

Related documents

• This document amends Insurance Act 1978