Munich Re suggests a 'regulatory sandbox' for insurance

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Contrary to popular belief, regulators and insurers can work together to streamline insurance innovation, according to Kelsey Brunette, ideation analyst at Munich Re America.

Using regulatory sandboxing principles introduced in the U.K. in 2015, Munich Re proposed a new set of guidelines to the National Association of Insurance Commissioners in November intended to smooth out working relationships between U.S. carriers and lawmakers.

Under the proposal, “Future of Insurance Technology Lab,” regulators would walk groups of insurtech companies through accelerators or vetting processes. Startups whose respective business models check out can receive exemptions from current regulations in place. The NAIC is scheduled to vote on Munich Re’s proposal on May 23.

“Innovation will butt up against regulations,” Brunette said in discussing the proposal during her keynote address on the final day of Digital Insurance’s Dig | In: The Future of Insurance conference, last week in Austin, Texas. “At some point, you will have to prove to a regulator that you can fulfill the two pillars of regulation: solvency and consumer protection.”

Keeping in mind that 90% of startups fail once they hit the market, regulators want to make sure industry newcomers stay around for the long haul, Brunette added. That certainty begins with the education and understanding of new technologies.

On a national level, Munich Re’s proposal allows the NAIC to start the conversation with startups. On a state level, insurtechs can approach lawmakers early on giving regulators ample time to determine whether they will give the green light or pivot companies in another direction.

“In other industries, you can market your product to one to 10 people and know it’s not going to work,” said Brunette. “But in insurance, you first have to get regulatory approval and then go out into the world and find out it doesn’t work. Those fears can be solved through sandboxing and pilot programs.”

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