NAICOM Moves to Safeguard Insurance Consumers, Unveils Guidelines to Regulate Sandbox Operations

James Emejo in Abuja

The National Insurance Commission (NAICOM), has released guidelines for the regulation of sandbox operations in the insurance industry.

Head, Corporate Communication and Market Development, NAICOM, Mr. Rasaaq Salami, said the move was part of the commission’s strategic objectives to drive innovation of products and services and ensure that operators are professional in the conduct of their businesses in line with best practices.

The regulation, which became effective on May 1, 2023, seeks to set standards for live trials or demonstrations of new innovative products in the industry.

The “Insurance Regulatory Sandbox Operational Guidelines”, also seek to provide 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 as well as promote and deliver economic benefits, by lowering the cost of business operations.

To safeguard consumers, the framework required applicants to have a minimum professional indemnity of N500 million among other regulatory requirements.

Essentially, professional indemnity insurance protects the operator against claims for loss or damage made by clients or third parties as a result of the impact of service negligence or negligent advice offered – and claims can be made against a service provider even if offered for free.

According to NAICOM, the regulatory sandbox refers to a consciously established relaxed regulatory environment for the testing of innovative products, services, business models, and channels of distribution subject to regulatory discretions and set parameters that have the potential of improving insurance inclusiveness and service efficiency in the country.

The commission, however, specified the possible areas of innovation that will be allowed into the regulatory sandbox.

These include insurance solicitation or distribution; insurance products; underwriting, policy and claims servicing; and any other activity within the insurance value chain.

The document further set the eligibility criteria for the operation of the sandbox, stating that applicants must demonstrate the potential 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.

Furthermore, the applicant shall be a registered business in Nigeria and must have a fit and proper management and leadership as well as 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.

The insurance industry regulator also stated that it will accept applications from four categories of applicants including insurers, insurance brokers, loss adjusters and any other applicant as the commission deems fit.

The commission added that financial and insurance 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, adding that such application shall be accompanied by a Service Level Agreement which will be subject to commission’s approval.

Salami added that all operators are to ensure compliance with the new guidelines for the benefit of all stakeholders.