Proposed fintech “sandbox” regulations will help insurers test innovations but should be further refined so market benefits can be better assessed, according to the Insurance Council of Australia (ICA).

The draft regulations would allow testing of products and services, without a licence, on no more than 100 retail clients with a total exposure of $5 million. The rules do not include issuance of new classes of financial products.

“Given the mass-marketed nature of many types of insurance, this limit on the number of clients is a problem for general insurers wishing to test a significantly larger client base to determine whether a new service is indeed business and market viable,” ICA CEO Rob Whelan says in a submission on the draft.

“Where a participant in the sandbox could demonstrate that consumer protections are strong, there may be benefit in allowing some flexibility, at Australian Securities and Investments Commission discretion, to adjust these limits on a case-by-case basis.”

The sandbox offers Australian financial services licence exemptions so products can be assessed on a small scale with retail and wholesale clients.

ICA supports proposed regulatory changes that extend the sandbox’s scope and allow current licensees to participate in new areas, giving the process more relevance for general insurance.

“The current eligibility restrictions have constrained potential partnerships with start-up businesses, because a relationship with an established insurer would prevent them from accessing the sandbox,” Mr Whelan says.

ICA says technological advances are providing great opportunities for the industry to better meet consumer needs, but the potential remains largely untapped.