Sandboxes have become established and important feature of the regulatory landscape in several of the world’s leading financial centres.  Sandboxes provide an environment in which businesses can test innovative products under a relaxed set of regulations.  Businesses gain valuable market and user data from sandbox tests, while regulators gain insight into the ability of the tested products to comply with the relevant supervisory requirements.  Sandboxes also allow regulators to adjust and refine their regulations, having regard to the latest technological applications being developed by the industry.

Hong Kong’s Insurance Authority (IA) established its own insurtech sandbox in September 2017.  ‘Insurtech’ simply refers to the application of technology in the insurance industry.  The IA’s sandbox is available to authorised Hong Kong insurers and their technology providers.

The IA will adopt a flexible approach for its sandbox, evaluating applications for sandbox trials on a case-by-case basis according to the following principles:

• Scope - The insurer should clearly define the scope of the trial, including timing, size and type of insurance business, targeted users, technology being used and expected outcome.
• Risk - The insurer should design the trial to include control procedures consistent with the IA’s relevant supervisory requirements.
• Customer protection - The insurer should build customer safeguards into the trial.  For example, it may be appropriate to inform customers that they are participating in a trial which may not be subject to full regulation.
• Readiness - The insurer should be able to demonstrate that its technology is ready for trial and that it will devote adequate resources to the trial.
• Exit - The insurer should have an exit strategy in case the trial needs to be terminated earlier than expected.

The IA has not defined parameters for those principles, nor has it specified a list of supervisory requirements that could be relaxed within the sandbox framework.  The IA nevertheless stressed that sandbox trials will not be unregulated; the sandbox is not a means to bypass applicable and related supervisory requirements.

The IA’s sandbox will sit alongside the fintech sandboxes already set up by the Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC).  If a firm seeks to trial a cross-sector insurtech and fintech product, it may apply for the sandbox it sees as the most relevant to its product.  It is anticipated that the IA, HKMA and SFC will work together in such instances.  

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