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Chuks Udo Okonta
To encourage innovation that would drive financial inclusion and positive competition, National Insurance Commission (NAICOM) has released the insurance regulatory sandbox operational guidelines, which would be used to test insurance solicitation or distribution; insurance products; underwriting; policy & claims servicing and any other activity within the insurance value chain before making them public.
A sandbox is an isolated testing environment that enables users to run programs or open files without affecting the application, system or platform on which they run.
Software developers use sandboxes to test new programming code. Cybersecurity professionals use sandboxes to test potentially malicious software. Without sandboxing, software or applications could have potentially unlimited access to all the user data and system resources on a network.
Sandboxes are also used to safely execute malicious code to avoid harming the host device, the network or other connected devices. Using a sandbox to detect malware offers an additional layer of protection against security threats, such as stealthy attacks and exploits that use zero-day vulnerabilities.
NAICOM stated that these uidelines are issued in exercise of the powers conferred on the National Insurance Commission (hereinafter referred to as the Commission) under the National Insurance Commission Act 1997 and the Insurance Act 2003, adding that these guidelines shall be read in conjunction with the provisions of the Insurance Act as well as other regulations, notices and circulars that the Commission may issue from time to
time.
It noted that the guidelines shall come into effect May 1, 2023, adding that it provides insurance institutions, other firms and persons the opportunity to test business models, products and services that will enhance efficiency in meeting consumers’ needs; encourage innovation that will drive financial inclusion and positive competition and promote and deliver economic benefits, by lowering the cost of business operations.
“Regulatory sandbox refers to a consciously established relaxed regulatory environment for the testing of innovative products, services, business models, channels of distribution subject to regulatory discretions and set parameters that have potential of improving insurance inclusiveness and service efficiency in Nigeria.
“The possible areas of innovation that will be allowed into the Regulatory Sandbox are as follows: Insurance solicitation or distribution; insurance products; underwriting; policy and claims servicing and any other activity within the insurance value chain,” it submitted.
NAICOM noted that an applicant would be eligible to be considered for the sandbox after meeting these criteria: Must demonstrate the potentia to advance inclusive insurance -The proposed product, service or solution is genuinely innovative with clear potential to advance the objectives of Inclusive Insurance by improving accessibility, efficiency, security and/or quality in the provision of insurance services to consumers in Nigeria.
“The Applicant shall be a registered business in Nigeria; must have a Fit and Proper Management and Leadership; must demonstrate that it has conducted sufficient diligence to understand the potential risks and/or legal and regulatory requirements for deploying the proposed insurance product, service or solution,” it said.
NAICOM noted tht it accept applications from the following categories of applicants: Insurers; insurance brokers; loss adjusters and any other applicant as the Commission deems fit.
It said Fin/insur technology companies that wish to deploy their services in the sandbox will have to apply in partnership with or through any of the above-mentioned categories of applicants, such application shall be accompanied by a Service Level Agreement(which will be subject to Commission’s approval).
“Where the innovation involves introduction of an insurance product or underwriting process, the applicant shall partner with an insurer.
“Fin/Insur technology firms shall be registered under the CAC Act,” NAICOM added.
The insurance industry regulator said approval to participate in the sandbox shall be in three stages: application stage, stressing that application to participate in the sandbox can be filed at any time either through the Commission’s online sandbox portal or manually and that the application shall be accompanied with a proposal and fee as may be prescribed by the Commission from time to time.
“An applicant shall ensure that the eligibility criteria have been met before submitting the completed online application form to the Commission.
“Upon receipt of the proposal and application, the Commission will review for
completeness of documentation and inform the applicant of its suitability or not to participate in the sandbox within 30 days from the receipt of ful/final information for the review of the application.
“Evaluation Stage: The evaluation stage will involve confirmation of documents provided by the applicant as well as due diligence on persons and inspection where necessary. The period required for evaluation of
the application shall be 45 days, however, a notification will be sent out to the company if it will exceed the specified period.
“Due to the exploratory nature of the Sandbox approach, the applicant is allowed to make
adjustments to the proposal for resubmission after discussing with the Commission.
“Approval Stage: The successful applicant will be given approval to commence the test upon satisfactory evaluation of the application and their name published on the website of the commission and in a national daily newspaper printed in Nigeria before commencement of their activities,” it said.
