States look to promote out-of-the-box thinking with regulatory sandboxes

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Jasmine Kim

B2B Content Manager

  • Licensed Insurance Agent — Property and Casualty

Jasmine is The Zebra’s newsroom content writer. With a background in journalism, she reports on breaking news, trends, mergers and acquisitions, and …

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Renata Balasco

Senior Content Strategist

  • Licensed Insurance Agent — Property and Casualty

Renata joined The Zebra in 2020 as a Customer Experience Agent. Since 2021, she has worked as licensed insurance professional and content strategist.…

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Why regulatory sandboxes?

As the nation continues to recover from the effects of the pandemic, climate change, supply shortages across industries and employee burnout still pose threats to how we work. To combat these challenges, businesses are looking for ways to stay innovative, encourage forward-thinking and develop new products and services for the betterment of the community. Additionally, state regulators have started establishing non-industry-specific regulatory sandboxes[1] to create a more lax business environment for new and existing companies to experiment. 

Originally designed for the fintech industry, regulatory sandbox programs serve companies as a way to prevent government regulations from smothering new technologies and innovations by allowing companies to be temporarily exempt until the state can determine if the product or service is useful.[2] By establishing designated “test areas” for new products, these programs encourage business growth and curate innovation hubs for up-and-coming companies.

For the insurance industry, sandboxes give businesses the chance to develop services that might be outside of the status quo and encourage companies to explore ideas that could better serve employees as well as customers. Here are a handful of states that have deployed insurance sandboxes:

  • Kentucky was the first state to provide a comprehensive framework for an insurance regulatory “sandbox” in 2019 which is open until 2025. The statute provides regulations for participating in both an initial beta test and an external period of relief from regulation.[3] Companies must apply to the Department of Insurance for admission and explain the product’s innovation and value to customers, while demonstrating financial stability. 
  • West Virginia established a sandbox program in July 2021, designed to encourage and welcome new and innovative insurance businesses into the state that would otherwise be subject to regulatory hurdles under state law.[4]
  • In March 2021, South Dakota signed into law a regulatory sandbox targeting the insurance industry, where companies can offer their products or services in a controlled environment for up to two years.[5] The state provides controls for entry and exit from the sandbox so consumers aren’t left high and dry. New and existing companies are encouraged to take part in the program. 
  • Utah passed a bill in March 2021 that would expand the scope of the regulatory sandbox program beyond the financial services, insurance and legal services industries. The state deployed the insurance sandbox program a year prior, and this expansion makes Utah was the first state to make such a wide program available for businesses across all industries.[6] 
  • Vermont deployed an insurance regulatory sandbox in 2020, allowing the state Department of Financial Regulation to waive laws that would prohibit the introduction of a more innovative or efficient product or service. Products offered under the waiver must be made available to fewer than 10,000 consumers and are limited to a 12-month period with the option of a one-time 12-month extension.[7]

Not only do regulatory sandboxes allow companies to challenge and test emerging technologies and business models; they also can serve as potential solutions to the “barrier to entry” challenge by promoting collaboration between businesses and public regulators.[8] Currently, New Hampshire,[9] Louisiana[10] and North Carolina[11] have also introduced bills to establish insurance regulatory sandboxes this year, but these have yet to be approved.   

  1. How State ‘Regulatory Sandboxes’ are Laboratories for Innovation. National Interest

  2. Regulatory "Sandbox" Reforms Advance Across the Nation. Mississippi Center for Public Policy

  3. House Bill 386. Kentucky General Assembly

  4. West Virginia Welcomes Insurance Innovators Into its Regulatory “Sandbox”! West Virginia Offices of the Insurance Commissioner

  5. Senate Bill 55. South Dakota Legislature

  6. Regulatory Sandbox Program Amendments. Utah State Legislature

  7. Insurance Regulatory Sandbox; Sunset. Vermont State Legislature

  8. Expanding Regulatory Sandboxes to Fast-Track Innovation. The James Madison Institute

  9. NH SB453 | 2020 | Regular Session. Legiscan

  10. LA SB231 | 2021 | Regular Session. Legiscan

  11. NC S470 | 2021-2022 | Regular Session. Legiscan