Regulatory Sandboxes Will Encourage Innovation
"With targeted red tape relief for the stagnant insurance industry, or perhaps even other industries in the future, Montana can become a destination for innovative businesses nationwide."
Montana has nearly 60,000 regulatory restrictions on the books, many of them written decades ago before apps and smartphones that are ill-equipped to serve the public in the 21st century. Insurance in particular is one of the most regulated industries in the state, making it extremely difficult for businesses to be innovative to serve the unique needs of Montana customers.
Thankfully, lawmakers have proposed creating a regulatory sandbox for property casualty insurers in Montana, providing targeted red tape relief to promote innovation, drive down costs and make it easier to do business.
Regulatory sandboxes create a mechanism for identifying unnecessary regulations and fast-tracking innovative products and services to the market. Sandboxes work by temporarily waiving the red tape standing in the way of good ideas, allowing businesses to test ideas free from burdensome regulation while still undergoing oversight to protect consumer safety. Six other states have already established insurance sandboxes, with Montana poised to be next in line.
Under Montana’s regulatory sandbox proposal, introduced as House Bill 836, businesses which apply to have regulations waived in the sandbox must explain the value of their innovative product or service to consumers, in addition to demonstrating their financial ability to cover any potential risk of consumer harm. While the regulatory waiver can last up to six years, Montana’s Insurance Commissioner will be able to revoke the waiver anytime if the entrepreneur fails to comply with any terms, conditions or limitations agreed upon to protect consumers.
The sandbox program would also provide essential data about whether regulations should be reformed or repealed. During the bill’s first committee hearing, bill sponsor Rep. Katie Zolnikov explained that the sandbox program would provide the legislature with information about “ways to tweak or rewrite our existing code that allows for innovation that’s proven to work.”
While the list of potential innovations unlocked in the sandbox is nearly limitless, several examples were brought up during the hearing. One example of an innovative product that could be tested in the sandbox is on-demand insurance, which allows consumers to secure insurance for expensive property like professional cameras only when it is in use or most likely to be broken. The ability to easily toggle insurance on-and-off when needed could be a huge boon to Montana entrepreneurs who have side-hustles that require flexibility.
Arguably the most impactful potential innovation in the sandbox could be to workers’ compensation insurance. Currently, Montana has some of the highest worker compensation rates in the nation, driven by an industry injury and accident rate 1.26 times the national average. This dynamic makes Montana ripe for innovations to promote greater workplace safety and help employees return to work quicker after an injury.
During testimony, proponents discussed incentives that could be tested in the sandbox to achieve greater workplace safety, such as rebates to companies providing essential safety equipment to workers or return-to-work programs to help to reduce the duration of claims by incentivizing employees to get back to work quickly.
The innovation unleashed in Montana’s regulatory sandbox will not only benefit the insurance industry and their customers, it would also lower the cost of doing business for all Montanans. Even a small decline in workers compensation rates spurred through greater workplace safety or reduced claim duration has broader impacts that reach the entire state economy, reducing overhead costs for all Montana businesses.
Ultimately, establishing a regulatory sandbox will encourage the innovation necessary to unleash greater economic growth and prosperity that will benefit all Montanans. With targeted red tape relief for the stagnant insurance industry, or perhaps even other industries in the future, Montana can become a destination for innovative businesses nationwide.
This column originally appeared in the Bozeman Daily Chronicle.