Why in news?
=>The Insurance Regulatory and Development Authority of India (IRDA) is working on the guidelines for ‘Sandbox’ method which will allow insurers to test products in a particular geography or among a set of few policyholders before they are available in the market.
=>The regulator has also asked insurance firms to come out with long-term health insurance policies, which are currently only available in two wheeler and four wheeler insurance.
Committee on sandbox concept:
=>IRDAI has set up a committee to look into the concept of a regulatory sandbox in the country. Under this, the committee will look into the possibility of having an environment where fintech solutions can be experimented on and the consequences of failure can be contained.
=>The 10-member committee with representatives from both the regulatory body and the industry will have IRDAI general manager RK Sharma will be the convener. It will have to submit the report within two months.
=>The committee will look into the key issues that fintech poses across the insurance value chain. Further, the practices prevalent in other industries will also be looked at. Also, a draft consultation paper on regulatory sandbox in insurance space will also be released by the committee.
=>The Supreme Court had recently turned down the last-ditch attempt by the general insurers to extend the time-frame for implementing its order on issuing long-term motor policies. Insurers now issue one-year medical policy in the health segment which is renewed every year depending on several terms and conditions.
=>There is lower penetration of insurance in the country, which is only 3.69% of the gross domestic product (GDP) as against global average of 6.2%, the IRDAI urged the industry to further spread awareness among the general public about the importance of insurance, especially among youth.
=>Persistency levels need to be improved. Affordability and misselling are two factors that impact the persistency of life insurance policies.
=>If this persistency is improved, the sector will have much more money available and that will go to long-term savings which will result in much higher economic development in the country because long-term projects need a type of funding that can be supplied only by the insurance industry because we can invest it for a much longer period of time.
What is sandbox?
=>Regulatory sandbox provides a safe and secure environment to fledging Fintech firms to try out their ideas and test their innovations. The sandbox allows firms to operate in a live but controlled environment where some of the regulations have been relaxed.
=>The sandbox environment has suitable safeguards to ensure that effect of failure of companies is limited and does not affect the stability of the overall financial system.
=>Firms and regulator work together to tweak the regulatory environment in the sandbox enabling the firms to experiment their products/offering without affecting the current financial system or compromising on customer protection. It also helps them assess the impact of regulations on their profitability and overall business model.
=>Globally, regulatory sandboxes have been introduced in UK, Singapore, Australia, Malaysia and UAE. Each country has a certain “target group” for which sandboxing is done. All these countries have so far created sandboxed environment to support Financial Institutions (FIs) and fintech firms.
Pic courtesy:Agile Data
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