The new Kentucky law, signed by the Governor on May 20th, goes into effect on June 27, 2019
The Kentucky Department of Insurance has taken the regulatory lead in insurtech innovation integration within the rest of the insurance industry. On May 20, 2017, Governor Matt Bevin signed HB 386 into law authorizing the creation of a first-of-its-kind regulatory “sandbox” allowing for the development of creative risk management solutions outside of the normal state regulatory laws.
“Implementation of the regulatory sandbox will establish the Commonwealth of Kentucky as a safe space for entrepreneurs to test and launch insurance-related innovations and programs not yet contemplated by the Insurance Code,” said Secretary Gail Russell, of the Public Protection Cabinet. “Insurance innovation can lead to cost savings on all types of insurance for Kentucky businesses and consumers.”
With the passage of HB386, the Commonwealth of Kentucky is looking to take the lead with respect to insurance innovation and implementation with the insurance industry.
“We look forward to promoting Kentucky as a place for insurance innovation,” said Commissioner Nancy Atkins. “Insurance products and distribution are rapidly evolving with our ever-changing economy. This legislation establishes a framework to allow Kentucky to encourage product development for the future of risk management.”
How it will work…
[pullquote]For those interested in applying now, representatives of the Kentucky Department of Insurance will be in attendance at the National Association of Insurance Commisioner’s 2019 Insurance Summit in Kansas City, where they will be available for meetings with potential sandbox applicants as part of the Innovator & Regulator Workshop on Tuesday, June 4.[/pullquote]According to the official announcement, the new sandbox will be administered by the Department of Insurance (DOI), allowing for both flexibility for insurtechs and innovators while preserving “necessary consumer protections.” Any start-up or company interested in participating in the sandbox must first apply for admission to the Kentucky DOI. Included in the application should be an applicant’s explanation of their product innovation, proof of demonstrated “financial stability” along with description of its potential value to customers.
“Kentucky has taken the lead in North America in the ‘HOW’ of insurance with the first safe harbor to play in the insurtech’ sandbox. Entrepreneurs will no longer have to wait lengthy periods of time and lobby for changes in law or go abroad to be creative. This is perhaps the single biggest change in insurance since the Internet,” said Mica Cooper, CEO and President of InsureCrypt, an insurtech startup.
It is important to note that innovators working in the sandbox will be required to report key data to the Kentucky Division of Insurance which will use it for “ongoing evaluation and oversight.” The Division also plans to provide ongoing updates to legislators “to ensure adequate monitoring of this unique framework.” Those ventures deemed successful in providing benefits to Kentuckians will be used as evidence in support of reforming the Kentucky Insurance Code.
For those interested in applying now, representatives of the Kentucky Department of Insurance will be in attendance at the National Association of Insurance Commisioner’s 2019 Insurance Summit in Kansas City, where they will be available for meetings with potential sandbox applicants as part of the Innovator & Regulator Workshop on Tuesday, June 4.
What HB386 says…
The following is the official language of HB386 with regards to the new “sandbox”:
HB 386 – An act relating to the insurance industry.
Allows for insurance innovation within the Commonwealth of Kentucky by providing the commissioner with authority to approve innovative conduct outside of specific statutory and regulatory provisions. The goal is to make Kentucky a safe place for meritorious innovation that benefits the public, does not pose an unreasonable risk of harm to consumers, and leads to insurance policy changes benefiting all Kentuckians.
Licensed entities may apply to the commissioner for a safe harbor testing period if they have an innovative proposal that has not been used in Kentucky, is subject to specific statutory or regulatory barriers, and meets specific criteria including whether the innovation poses an unreasonable risk of consumer and benefits the public interest. The entity must complete a detailed application and satisfy necessary financial security requirements. The commissioner, at his or her discretion, may issue, on completion of review of the application, a “notice of acceptance” to the applicant setting forth the terms and conditions that will govern the applicant’s beta test. The applicant can accept the notice or contest it.
If accepted, the commissioner shall issue a “limited no-action letter” setting forth the conditions of a beta test and establishing a safe harbor under which the Department will not take any administrative or regulatory action against a participant or client of the participant concerning the compliance of the insurance innovation with Kentucky law so long as the participant or client abides by the terms and conditions established in the limited no action letter.
The beta test is a one year period, with a potential extension of time to two years, where the applicant may sell or utilize the innovation approved in the application. The commissioner does have oversight during this period including review of specific monthly reporting obligations. The commissioner may also terminate the beta test for various reasons including the violation of the terms and conditions, and a determination that the beta test is harming consumers.
At the conclusion of the beta test, the commissioner has the option to issue an “extended no action letter” informing all entities that they may safely offer the innovation within the Commonwealth. The commissioner may also decline to issue such a letter, at which point the product shall no longer be offered. The extended no action letter may remain in place for up to three years with no provision for an extension. During this time, the barriers to innovation, statutory or regulatory, should be considered for amendment. If the barriers are not removed to accommodate the innovation, then the parties must cease all conduct related to the innovation at the expiration of the extended no action letter. The Department is required to publish all limited no action letters and extended no action letters on its website. Additionally, the Department is required to report to the legislature on the usage of
the innovation provisions, and provide recommendations for statutory changes.
What about Massachusetts?
In addition to Massachusetts being one of the top insurance markets in the country, the Commonwealth’s capital, Boston, is also one of the leading cities in the nation for insurtechs and insurance innovation. As such, that many in the insurance industry have been advocating for and would only enhance the insurtech ecosystem here.
As Massachusetts own leading insurance innovation thought-leader, Abel Travis, so aptly stated on his LinkedIn profile this week. “Something I’ve discussed in the past regarding creating a regulatory sandbox to support innovation between Carriers, InsurTech’s and regulators. Kudos to KY Commissioner @Nancy G Atkins and Deputy Commissioner Patrick O’Connor II, Esq for taking the lead.”