The corporate regulator’s attempts to encourage innovation have “not made an impact” on the insurance industry, Insurtech Australia says.

In a submission to a Treasury review of the Enhanced Regulatory Sandbox, IA says the Australian Securities and Investments Commission has made a “genuine and sustained effort” to enable financial innovation.

“But it has not made an impact on the insurance industry and insurtech ecosystem,” IA CEO Simone Dossetor adds. “There is now an opportunity to learn from global best practice, to make the ERS a meaningful enabler of innovation, supporting productivity, competition and consumer outcomes while maintaining regulatory confidence.”

IA says no business providing insurance-specific services has successfully applied for or relied on the ERS, and claims handling is not eligible, which is a significant limitation.  

“The ERS is poorly suited to claims, underwriting and risk-management innovations, where learning requires scale, time and credible claim-loss experience.”

The ERS, introduced in 2020, is administered by ASIC and allows testing of innovative financial services without an Australian financial services licence.

But IA says the framework is “ineffective” in supporting insurtech.

It says it is a “passive exemptions framework with weak transition pathways and an innovation test emphasising the underlying product rather than the enabling technology.  

“The effort required to obtain an AFSL can exceed the resources of a start-up before product-market fit is proven ... An insurer may be reluctant to trial parametric insurance or automated claims decisioning – not because of consumer harm risks but due to uncertainty about how regulators will assess model risk, fairness or governance.”

Complexity, fragmented oversight and limited pathways to scale are limiting innovation in Australia, IA says. Other countries have more effective sandboxes that are embedded within licensing, supervision and market development strategies.  

IA recommends insurers and agencies be allowed to test innovations such as parametric products, AI-driven underwriting and automated claims without full obligations upfront.  

It is calling for tiered pathways distinguishing start-ups from incumbents, risk-based limits for insurance tests and better co-ordination across regulators. 

The submission says caps of $10,000 exposure per retail client are “materially constraining testing of insurance propositions, where premiums are often low but risk exposure is high and can be long-tailed”. 

Maha El Dimachki – independent chair of the ERS review – and ASIC senior executive leader Nathan Bourne will present at InsurtechLIVE26 in Sydney next week. Register here.