FinTechImplications of “SANDBOX” in the Fintech Industry: Innovations in Insurance

April 30, 20220


Just when the world is in awe of the rapid growth of FinTech industries, a plethora of Indian start-ups have confirmed their position in the era of online financial transactions. In an attempt to provide innovators an environment to imitate the features of financial products and services.

The Regulatory Sandbox (hereinafter referred as “RS”) is a platform wherein the companies can introduce their products or services to a niche market, which would help them to mitigate financial risks and it is also a benefit for live-testing in a controlled environment.

Till date Reserve Bank of India (hereinafter referred as “RBI”), Securities Exchange Board of India (hereinafter referred as “SEBI”) & Insurance Regulatory and Development Authority (hereinafter referred as “IRDAI”) have released their regulatory sandbox.

The scope of this article covers the development in the ‘InsureTech’ industry with the onset of RS and the procedures related to it and its direct effects.


“In the recent past, new Insurance companies and Insurance intermediaries have carried out technological innovations in their products and services. The authority encourages companies to develop such new technologies to add value for customers, increase efficiency, and better manage risks.”

                                                                                                                                             -S C Khunita, IRDAI chairperson

The RS has brought a significant change in the banking and insurance sector which may change the fate of traditional banking and insurance forever. The environment in which the aforementioned live-testing is carried out, is designed for experimentation for a specific period of time. An RS is basically such an environment used as a testing ground for new business models specifically by the financial services sector.

The IRDAI has enacted the Insurance Regulatory and Development Authority of India (Regulatory Sandbox) Regulations, 2019 (hereinafter referred to as “Sandbox Regulations”) which provides the guidelines for RS and is meant to be implemented in consonance with the Insurance Act, 1938 (herein referred as “the Act 1938”) as well as the e Insurance Regulatory and Development Authority Act, 1999 (herein referred as “the Act 1999”)

The Sandbox Regulations were initially meant to be valid until the completion of 2 years since its enactment of the Act 1938 and Act 1999, however, on 12.04.2021  IRDAI issued a   notification wherein the validity of the Sandbox was extended for the next 2 years.

The objective behind this initiative is to create a balance between the orderly expansions of the insurance sector and the preserve the interest of the policyholder in light of enabling innovation. Undoubtedly, the Sandbox Regulations take cognizance that such balance can be strived for only with a few relaxations.

The RS shall be a catalyst in the growth process of the FinTech industry along with curbing financial frauds and other vices.


The RS process shall be regulated by a 10-member group made up of IRDAI officials, representatives from insurance companies, and the World Bank. The council of 10 members has been invited to focus on the major regulatory concerns that Fintech raises throughout the insurance value chain.

The eligibility criteria that Insurers need to fulfill to apply for RS are as follows:

  1. The InsurTech shall have a minimum net worth of Rs. 25 Lakhs during the previous 3 years
  2. The innovation should be as per Regulation 6 of the Sandbox Regulations
  3. The permission for the testing period shall be 6 months which is extendable by another 6 months.

Any person or entity recognized by the IRDAI may apply for the introduction of a service or product. Applicants can apply jointly or individually.

As the Fintech industry is a solution-focused establishment wherein, the RS can be a good platform to calculate the quantum of loss including the preventive measures.


An insurer (herein referred as “innovative insurer”), may apply to the IRDAI seeking promotion or/ and implementation of his innovation. Regulation No. 4 of the Sandbox Regulations categorizes the cohorts (applications) as under:

(a) Insurance Solicitation or Distribution

(b) Insurance Products

(c) Underwriting

(d) Policy and Claims Servicing

(e) Any other category as recognised by the Authority

The cohort can be made in an electronic form and requires to be accompanied with a fee of Rs. 10,000/-. The Chairperson shall, after due diligence in accordance with Regulation 6 of the Sandbox Regulations and Act, 1938 and the Act 1999, grant the permission.

The revocation of such granted permission is at the discretion of the Chairperson of IRDAI.


Firstly, the RS encourages ‘learning by doing.’ Regulators gain first-hand empirical evidence on the benefits and hazards of developing technologies, as well as their ramifications, allowing them to make informed decisions about regulatory adjustments or new regulations that may be required to foster valuable innovation while mitigating associated risks. Existing financial service providers, such as banks, enhance their grasp of how new financial technologies work, allowing them to integrate such new technology into their business plans more effectively. FinTech companies and innovators can have a better understanding of the regulations that govern their offers and design their products accordingly. Finally, customer input informs both the regulator and the innovator about the costs and benefits that may accrue to customers.

In India, insurance penetration is barely 3.69 percent of GDP, compared to 6.2 percent globally; the Sandbox Approach for testing new products can help improve these figures. The “Sandbox Approach” provides the Insurance Industry with a plethora of chances to embark on a trip and spread their influence into more ecosystems than ever before.

If a product appears to have the potential to be successful, users of an RS can evaluate its feasibility without the need for a bigger and more expensive roll-out. If any issues develop during the sandbox phase, changes can be made before the product is released to the general public.

FinTech companies offer solutions that can significantly increase financial inclusion, in fact, the RS has the potential to not only improve the rate of innovation and technology adoption, but also financial inclusion and financial reach. Microfinance, creative small savings, remittances, mobile banking, and other digital payments are all potential beneficiaries of the RS.

The regulator’s reliance on industry/stakeholder consultations is reduced as a result of creating a structured and institutionalised environment for evidence-based regulatory decision-making.

Lastly, Consumers may benefit from the RS as a result of a wider selection of products and services, lower pricing, and easier access to financial services.

The FinTech-company provides innovation in the insurance sector through the RS which was considered by IRDAI on May 2019. This concept not only promotes new Fintech players to come in the market but also the existing company to build their own FinTech solutions with the help of Sandbox. This will increase the competition level between the FinTech Company as who will provide good products or services to their customers in much lesser price. Not only this but the sandbox will help FinTech company to provide solutions to the obstacle faced by buyer. The regulation was meant while keeping in mind past years of COVID-19 pandemic and making the application process only available online, by visiting to the website provided.


While considering the benefits of RS, there is also associated risks and limitation. The innovators may lose some freedom and time while going through the sand ox procedure. In fact, this danger can be mitigated by running the RS in a time-bound way at each stage.

Case-by-case customized authorizations and regulatory exemptions might take time and need discretion. This risk can be mitigated by processing applications in a transparent manner and making decisions based on well-defined rules.

No legal waivers can be granted by the RBI or its RS.

After completing sandbox testing, a successful experimenter may still need regulatory clearances before the product/services/technology may be used more widely.

Some legal difficulties, such as those relating to customer losses in the event of failure experimentation, may arise. If the RS framework and processes are transparent and have clear admission and departure criteria, such incidents may not have much legal substance. In this scenario, it will be critical to have upfront clarity that liability for consumer or business risks will fall on the company entering the RS.


The Financial Conduct Authority, United Kingdom’s British Financial Regulator was the first to launch the Fintech sandbox, back in 2016. The FCA reported that 90% of firms that completed testing in the sandbox are continuing toward a wider market launch.

In India, the sandbox also has a twofold effect, firstly, it might be sound good as new company might show its interest in it, however, at the same time, it will also increase the competition level not only between  Indian companies but also from foreign companies as well. Sandbox as a concept is very beneficial in long run for the FinTech Industry and it might increase the revenue of the FinTech industry. It might lead the companies to know their defect, however, only on small scale but what about the same thing fail when it is supplied on large scale. The new FinTech-related start-ups might have a full focus to utilize the sandbox as much as they can, as it was the basic aim of the legislature while introducing it.

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