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On March 26, 2019, Kentucky Governor Matt Bevin signed new legislation that establishes the nation’s first comprehensive insurance regulatory “Sandbox,” making the Commonwealth of Kentucky a true innovation hub for the insurance and technology industries (InsurTech). The Sandbox will allow innovators to come to the Bluegrass State and “beta test” innovative products, processes, methods or procedures relating to the sale, solicitation, negotiation, fulfillment, administration or use of any product or service subject to regulation by the Kentucky Department of Insurance.

The regulatory Sandbox, or safe place for innovation, has received national interest. Presentations have been made to commissioners at the Mid-West Zone and the AICP Mid-West Chapter E-Day and are scheduled at the upcoming National Conference of Insurance Legislators (NCOIL) summer meeting in Huntington Beach, Calif., as well as the National Association of Insurance Commissioners (NAIC) summer meeting in New York.

According to, Mica Cooper, CEO and president of InsureCrypt, emphasized the importance of the Insurance Regulatory Sandbox in stating: “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.”

Innovators that receive admission into the Sandbox will be able to operate within a safe harbor protected from regulatory action for a period of up to two years, during which the innovator may test the innovation in a live marketplace. The safe harbor will stay enforcement of any existing insurance laws that would otherwise prohibit or excessively complicate the implementation of the innovation, providing Sandbox applicants an opportunity to demonstrate outmoded spots in the insurance code in need of update or repeal.

The Sandbox legislation draws inspiration from various legal regimes and disciplines, both domestic and abroad, from the novelty and disclosure requirements of the United States Patent and Trademark Office to the authorization process of the Financial Conduct Authority in the United Kingdom, the world’s oldest and most developed insurance market. A company seeking admission to the Sandbox for a beta test of its innovation must apply to the director of insurance innovation and describe how existing regulation prevents the innovation from being utilized. To be approved, the innovation must serve the public interest, be economically viable, provide suitable consumer protection and not pose an unreasonable risk of consumer harm.

Upon admittance to the Sandbox, innovators will receive a limited no-action letter setting out the duration of the beta test and establishing the limitations of the safe harbor in which the innovation may be used, implemented or sold. The limited no-action letter will also provide the applicant with the exclusive right to use the innovation in Kentucky for the duration of the beta test. In exchange for these advantages, the company must agree to monthly reporting requirements and consumer protection measures.

Once the beta test ends, the commissioner of insurance will evaluate the data gathered by the applicant and the department to determine whether the innovation demonstrated utility, benefit to consumers and no risk of unreasonable harm. If the commissioner makes a positive determination, the Department of Insurance will issue an extended no-action letter and open the safe harbor to the public for a period of up to three additional years. During the pendency of this extended no-action letter, the Kentucky General Assembly will have an opportunity to consider making the safe harbor permanent through a modification to the insurance code. The Sandbox process will therefore assist the General Assembly in updating and modernizing the insurance code to address modern markets and technologies and could include anything from a digital commerce platform, a new product or a back-end portal for simplifying a purchase path.

“I’m working to send a clear message to the insurance industry that Kentucky is open for business and we’re focused on thinking outside the box. We’re working to transform our state, and we want you to come here if you’re looking to invest in innovative insurance products, processes or technologies,” said House Banking & Insurance Chairman Bart Rowland in an email to Greg Mitchell, Frost Brown Todd’s insurance industry group chair.

The Sandbox, crafted in collaboration with FBT’s Insurance Industry Group and the Kentucky Department of Insurance, is intended to attract interest not only from the existing insurance industry but also from venture capitalists and tech startups. Representative Rowland worked closely with the Insurance Industry Group and Frost Brown Todd’s public affairs subsidiary, CivicPoint, to develop House Bill 386 and shepherd it through the legislative process. The law builds on existing regulations in the United Kingdom and other states, putting the Bluegrass State as a leader in the InsurTech world.

Kentucky’s Insurance Regulatory Sandbox will go into effect June 27, 2019, positioning Kentucky at the forefront of insurance innovation. The time is right—the InsurTech industry is capable of delivering ultra-customized policies, increased social insurance, artificially intelligent agents and dynamically priced premiums, and industry leaders like Lemonade already generate $2 billion valuations.

The drive to innovate in a regulated industry always exists in tension with regulatory compliance, especially where longstanding regulations do not contemplate today’s newest ideas and serve as impediments to innovation. Kentucky’s Insurance Regulatory Sandbox will flip the existing paradigm on its head and, for the first time ever, industry and regulators will have an opportunity to come together and collaborate to bring both the insurance industry and regulation into the modern age by applying and/or conforming regulatory protections to the new ideas and innovations, rather than have the new ideas and innovations conform to static-unworkable regulation, while at the same time providing some comfort and regulatory certainty to the market.

For more information about FBT’s Insurance Industry Group, visit their page at Frost Brown Todd.

Contributing authors: Ellis Wilder and Barrett Block