After operating for a year under a simplified regulatory regime, São Paulo–based startup Pier was given permanent authorization to operate as an insurance company in May 2022. During this period, the company tested two types of insurance policies against the theft and robbery of cell phones and automobiles, selling them directly to customers. The policies are contracted exclusively through the mobile app with monthly terms and can be canceled at any time by the policyholder. In the case of automobiles, inspection is done remotely based on photographic evidence sent by the user themselves.
The startup was one of the companies authorized by the Superintendency of Private Insurance (SUSEP), an autonomous body linked to the Brazilian Ministry of Finance, to test innovations in the insurance market within a more flexible space that is monitored by the regulatory body, called a regulatory sandbox or experimental regulatory environment. One of the requirements relaxed by SUSEP was the minimum capital required for an insurance company to start operating in the country, to guarantee coverage for potential risks and losses, reducing it from R$15 million to R$1 million.
The term sandbox is an allusion to common areas in children’s parks, where children play under the supervision of their parents. The concept was borrowed by software companies, which often release experimental versions of programs in isolated computational environments that can be tested without compromising the systems on which they run. The concept has been adopted by public institutions from the financial sector, regulatory agencies in the areas of energy, transport, and telecommunications, as well as municipalities, to test and accelerate the implementation of new technologies and services with less bureaucratic processes. It has also gained legal traction by being included in Complementary Law No. 146/2019, known as the legal framework for startups, which was passed in June 2021.
“As the insurance market, like the banking sector, is highly regulated, smaller startups struggle to obtain authorization to test new products directly with customers without an experimental environment,” observes the CFO (chief financial officer) of Pier Seguradora, Carlos Colucci. Prior to participating in the sandbox, the company operated solely as an insurtech, a type of business that acts as an intermediary between large insurance companies and end customers. According to Colucci, in September 2021, while still in the experimental environment, the company increased its number of customers and received a US$20 million investment. With this growth, it was able to request to leave the simplified regulatory environment.
The pioneering cases
“The idea is to create an environment with flexible rules and see how they function in the real world in an experiment monitored by the regulatory agency and with a limited number of customers,” explains political scientist Clóvis Alberto Vieira de Melo, coordinator of Lab Policy Solutions of the Federal University of Campina Grande (UFCG) and coauthor of an article on the topic, published in the journal of the Brazilian Federal Court of Accounts (Revista do TCU) in January 2024. The study analyzed pioneering cases in autonomous bodies within the Brazilian financial system: those of the Central Bank of Brazil (BACEN), focused on financial and payment systems, the Brazilian Securities and Exchange Commission (CVM), for the capitals market, and SUSEP, for private insurance.
The article highlights that the autonomous bodies made the first calls for proposals in 2020. In the first admission process of the CVM, out of 34 proposals received, only those from four companies were approved. One of the approved proposals was submitted by Vórtx, a startup involved in the tokenization of securities, a process that transforms financial assets into digital assets using blockchain technology. Another was from Basement, which supported small businesses interested in increasing their capital by offering financial securities. The two companies ended up merging when they left the experimental environment in 2022. Initiatives such as this by the CVM have encouraged investments in fintechs, companies that develop innovative technological solutions for the financial market. According to the assessment in the informational note “Fintechs e Sandbox no Brasil,” (Fintechs and sandbox in Brazil), published by the Ministry of Finance in June 2019, the sandbox model had great potential at the time, particularly for fostering innovative services in this rapidly evolving sector, which has indeed been happening.
At BACEN, the first call received 52 proposals, of which seven were approved. At least two were accompanied by the Strategic Management Committee of the Regulatory Sandbox (CESB) of BACEN until the end of 2024, according to the minutes from the latest committee meeting available on the agency’s website, dated November 17, 2023. They are: an app for carrying out credit payment transactions using the functionalities of PIX, proposed by Banco Itaucard, and the creation of a network of physical points in partnering business establishments to receive cash deposits from customers of the digital bank Mercado Pago—under current regulations, this could only be done through the payment of bank payment slips at bank branches.
The concept is being adopted by regulatory bodies to test and accelerate the implementation of new technologies and services with less bureaucratic processes
SUSEP has conducted two sandboxes so far, and in June of this year, it opened applications for a third. During the test period, companies need to send periodic reports to the regulatory body, with information about the number of policies sold, accidents, and billing, for example, so that their performance can be monitored. The São Paulo based startup 88i went through this process and is now seeking a permanent license to become an insurance company, after three years in the sandbox. “We are in the process of leaving this experimental environment, showing that our business model is sustainable and that we can operate with security in a permanent manner in the regulated market,” explains head of operations and cofounder of the company, Rosi Sena. 88i tested a service for “micropolicies” that cover personal accidents for app drivers and transported goods and are issued digitally. The company’s system generates documents in real time during the trip, finalizing them as soon as the journey ends, and serves customers in the mobility and delivery sectors.
Limitations and expansion into other areas
The UFCG study highlights that none of these initiatives published estimates of the social impacts of the tested solutions or recommendations for improving regulations based on experiences in the sandboxes. “This is a very new process that requires time for implementation. There is still a lack of reports outlining its effects,” assesses Melo.
According to the article, the sandbox concept was tested for the first time in the UK in 2015 through the Financial Conduct Authority, a British financial regulatory body. Around two-thirds of the companies that participated in the first public notice obtained authorization to operate in the market, and of those, 40% received capital investments.
The experiences of the financial sector in Brazil have inspired initiatives in the areas of transport, telecommunications, data protection, energy distribution, and applications for smart cities. “The movement has grown, because this is an extremely pragmatic administrative law instrument aimed at real issues,” observes attorney Rafael Véras, of the Getulio Vargas Foundation (FGV) in Rio de Janeiro, who analyzed examples of experimental environments promoted by regulatory agencies in an article published in the journal Interesse Público in May 2024.
He highlights the experience of the Brazilian Terrestrial Transport Agency (ANTT) and the Brazilian Electricity Regulatory Agency (ANEEL). The first has been evaluating what is called the free flow toll, on the stretch of the BR-101 highway between Ubatuba, in the state of São Paulo, and the city of Rio de Janeiro, managed by concessionaire CCR. Free flow tolling is a type of automatic payment system where users do not need to stop, and the toll is charged section by section in a modulated manner. Vehicles are identified by toll gantries that recognize a TAG or their license plate—similar to the point-to-point system already implemented on some highways in the state of São Paulo, but new for federal highways. The initiative by ANEEL dates back to 2019, when power distribution company Enel Distribuição São Paulo requested authorization to implement a pilot project for self-reading, in which the residential consumers can register their electricity consumption themselves and send the data to the company.
Interventions on photo by Rich Vintage / Getty Images“In a municipal context, the city of Rio de Janeiro has an interesting example, Sandbox.Rio,” Véras points out. Created by the Department of Economic Development, Innovation, and Simplification, its calls for proposals are open for companies, research institutes, and other entities focused on the promotion of technological innovations that can be authorized to operate for 6 or 12 months in the experimental environment.
In July 2022, the department published the first four companies selected in the first cycle of the sandbox, two of which had their projects finalized and left the regime. One of these is MyView, which tested ground robots for delivery services. The company has not yet received authorization to operate. “We are finalizing the analysis report on the test results. These impacts need to be better understood, and at a minimum scale, we were unable to determine the viability of this project at this time,” explains Carina de Castro Quirino, undersecretary for Regulation and Business Environment at the department.
According to Quirino, another two companies had their test period renewed. Among them is the startup Eve Air Mobility, of Brazilian manufacturer Embraer, which is working on the development of eVTOL, an electric vertical take-off and landing aircraft. “The company is developing the entire regulatory framework with us related to the installation of an eVTOL port in Lagoa Rodrigo de Freitas,” states the undersecretary. In June, the names of six more companies selected for the second cycle were released, including Boos Bikes, which plans to install a parking and recharging hub for electric bicycles in the city.
Meetings
Economist Lorrayne Porciuncula, executive director of Datasphere Initiative, an organization specialized in data governance with headquarters in Switzerland and an office in Brazil, highlights the case of the National Telecommunications Agency (ANATEL), which approved the first regulatory sandbox pilot project in February of this year. The project will allow municipalities to use radiofrequency repeaters and signal boosters to improve cell phone coverage in areas with insufficient signal. “This example is interesting because it directly affects people’s lives. According to current regulations, municipalities are not able to offer telecommunications services; only authorized companies are permitted to do so. But many people remain without access,” she observes. The economist organized an event about national and international sandbox experiences on February 21, in Brasília.
In June, the Attorney General’s Office of Brazil (AGU), together with the Ministry of Development, Industry, Business, and Services (MDIC), launched a public consultation to receive proposals for improving regulatory sandbox processes within public administration. The contributions are under evaluation and may be used in a guide of best practices on the subject, which should be published later this year.
According to federal attorney Bruno Portela, coordinator of the AGU’s Innovation Laboratory and responsible for producing the guide, approximately 80 sandbox experiences in Brazil and abroad have been mapped. “The guide should provide guidance for public agencies with the aim of ensuring legal security for managers seeking to use the sandbox instrument to modernize the relationship between the State and the regulated entities,” says Portela. “Our idea is to expand the guide for other regulatory best practices,” adds the attorney. For Porciuncula, the AGU’s initiative is welcome as long as it does not impose limitations on new sandbox models. “We must be careful not to constrain a practice that needs to be inherently flexible,” she concluded.
The story above was published with the title “Testing platform” in issue 344 of October/2024.
Scientific articles
VIEIRA, J. B. et. al. O sandbox regulatório como instrumento de incentivo à inovação no Brasil: Os casos do Banco Central, da Comissão de Valores Mobiliários e da Superintendência de Seguros Privados. Revista do TCU. Vol. 1, pp. 336–62. Jan. 2024.
FREITAS, R. V. & ALTOÉ JUNIOR, J. E. Direito regulatório experimental: A aplicação do sandbox no direito brasileiro. Interesse Público – IP. no. 145, pp. 207–43. May 2024.
DATASPHERE INITIATIVE. Fora da caixa: Experiências de sandboxes nacionais e internacionais. 2024.
