Bermuda's innovative insurer sandbox

Matthew Carr, Legally Speaking

Published Jul 26, 2018 at 8:00 am (Updated Jul 25, 2018 at 8:51 pm)

Matthew Carr of Appleby

Bermuda has continually welcomed innovative re/insurers and intermediaries to our pink sandy shores, and the opportunity for insurtech start-ups to use Bermuda as a base for innovation will soon be enshrined in legislation.

Imminent amendments to the Insurance Act 1978, as amended (IA) will set a clear course for innovative re/insurers seeking to take a product, service or delivery mechanism from concept to market.

So, what does this mean for a potential re/insurer looking to do business in an innovative way? Amendments to the IA making their way through the legislature will enable an innovator looking to be licensed under the IA, or potentially an existing licensed re/insurer, to follow an innovation track. This will involve following a slightly different licensure process that introduces a regulatory testing environment or “sandbox”.

The sandbox will be a beta testing ground for new technologies, where the corresponding innovative products, services or delivery mechanisms can be tested and vetted by the Bermuda Monetary Authority before they are offered to a limited number of customers in a controlled environment and for a set period.

In this manner, Bermuda can continue to attract dynamic start-ups in the reinsurance space while ensuring that the underlying regulatory principles of transparency, fitness, propriety, proportionality and policyholder protection are not compromised.

Some of the expected benefits of the sandbox include:

• A safe and transparent environment to test innovations and/or clarify regulatory requirements before seeking formal authorisation and going to market.

• Establishing a working relationship with the BMA while ensuring that appropriate safeguards are introduced before products, services and/or delivery mechanisms are released to the market.

• Increasing efficiency by speeding up timing from concept to market.

• Improving the value proposition for innovators by reducing regulatory uncertainty.

• Bringing an innovative product to market from a world-leading domicile with the support of Bermuda’s deep pool of service-provider talent.

Re/insurers following this innovation track may be registered under a new class: ILT (innovative long-term) or IGB (innovative general business).

In keeping with Bermuda’s robust approach to regulation and transparency, the BMA’s website will contain a list of the companies approved to operate in the sandbox.

So, how does an innovative re/insurance concept come to life?

As with standard insurance applications, the parties involved can contact a Bermuda service provider such as a law firm or insurance manager to move ahead with the sandbox application process.

The application is prepared and submitted to the BMA, along with a fee of $6,180. The application should include, but not be limited to: (i) a cover letter highlighting how the minimum licensing criteria would be satisfied (for the relevant category of business), (ii) constitutional documents, and (iii) a business plan.

In evaluating the eligibility of a proposed innovative platform, the BMA will consider factors including: (i) whether the innovative insurer has satisfactorily demonstrated that it is able to use new or different technology or innovative measures to carry on the proposed innovative insurance business or provide products or services, (ii) the sophistication of the policyholders, proposed policyholders and service providers of the innovative insurer, and (iii) the fitness and propriety of the controllers and officers.

Following the BMA’s review of an application, it will determine and disseminate the legislative and regulatory requirements that are to apply during the sandbox testing period. Ultimately, the sandbox will have appropriate safeguards and reporting requirements to protect policyholders, cedants or contracting parties.

Under the innovation track, the protections afforded to counterparties include notification that the innovative re/insurer’s products, services and or delivery mechanisms are operating in a sandbox and disclosure of the associated key risks. The re/insurer is also required to obtain a written acknowledgement from its clients that they have read and understood the risks of transacting with the company while in the sandbox.

Upon approval, the re/insurer will be assigned a temporary sandbox licence and a principal contact, a BMA staff member, to assist throughout the duration of the sandbox testing period (Proof of Concept), which is likely to last six to 12 months.

Upon completion of the Proof of Concept phase, the re/insurer must submit a final report to the BMA on the outcomes of the testing. After review of the report by the BMA, the re/insurer will decide whether it will offer the new solution outside the sandbox. If approved by the BMA, the re/insurer will be issued a licence in accordance with the re/insurer’s business model and existing insurance licenses.

An innovative re/insurance concept that is not yet fully developed or ready for testing can avail itself of the BMA’s innovation hub. The Hub is a platform with a dedicated BMA working group that is designed to facilitate the exchange of ideas and information between the BMA and market participants.

In setting out a clear process for the testing and licensure of innovative re/insurers Bermuda is set to continue as a world-leading re/insurance domicile, and one that fosters exciting technological development without compromising its very high regulatory standards.

• Senior associate Matthew Carr is a member of the Corporate department at Appleby. A copy of this column is available on the firm’s web site at www.applebyglobal.com. This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer

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