Kentucky has enacted sweeping changes to its insurance code, passing House Bill 184 to extend and expand the state’s insurance regulatory sandbox through 2030 and to modernize protections for financial contracts in insurer insolvencies. The legislation carries significant implications for insurers, reinsurers, and insurance-related startups operating within the Commonwealth.
The law, signed last week, reflects growing national interest in fostering insurance innovation while simultaneously shoring up systemic risk management in the event of insurer failures.
One of the bill’s headline provisions is the extension of Kentucky’s regulatory sandbox program, initially slated to sunset in 2025, now extended through the end of 2030. The sandbox allows insurers and insurtechs to beta-test innovative products and services under limited regulatory exemptions — a model that has gained traction among states looking to attract cutting-edge insurance technologies.
The sandbox’s entry requirements remain stringent. Applicants must submit a detailed technical and business plan, a $750 filing fee, demonstrate at least $25,000 in available funds, and provide extensive disclosures on financial backing and executive leadership. Crucially, innovations must offer consumer protections and pose “no unreasonable risk of consumer harm.”
Notably, the law clarifies that sandbox participation is off-limits to applicants seeking to bypass solvency requirements, licensing, tax obligations, or mandated participation in risk-sharing pools such as guaranty funds.
By pushing the sunset date and maintaining robust safeguards, Kentucky signals a commitment to regulated experimentation — particularly appealing to insurtech startups and insurers piloting novel distribution channels, underwriting algorithms, or embedded insurance offerings.
Beyond the sandbox, HB 184 significantly modernizes Kentucky’s treatment of netting agreements and qualified financial contracts (QFCs) in insurance insolvencies — aligning the state’s statute more closely with the NAIC’s model law and the federal Bankruptcy Code.
In the event of an insurer’s insolvency, counterparties to swaps, repurchase agreements, and other QFCs will now enjoy broad protections. The law allows for immediate termination and netting of contracts, safeguarding counterparties from automatic stays that typically accompany receivership. Net settlement amounts owed to the insurer must be transferred to the receiver but are preserved as general assets of the estate.
Critically, the bill prohibits the transfer of QFCs to third parties unless all related contracts and obligations are simultaneously transferred to a single counterparty, reducing cherry-picking risk.
The bill also imposes new transparency requirements. Beginning with the 2026 legislative session, the Kentucky Department of Insurance must report annually on sandbox activity, including the number of applications, beta tests conducted, and safe harbor provisions created.
These reports will inform lawmakers of potential statutory barriers to innovation and may shape future regulatory reform.
HB 184 overhauls several receivership provisions under Subtitle 33 of Kentucky’s insurance code. Key changes include:
Together, these provisions are designed to expedite resolution, reduce litigation, and preserve asset value during complex insurer failures.
For insurers and reinsurers, the legislation represents both opportunity and caution. The extended sandbox gives innovators a clearer path to test data-driven and tech-enabled insurance models. However, heightened scrutiny on insolvency practices and netting agreements raises the bar for compliance and risk management, particularly for companies with complex investment strategies.
As Kentucky doubles down on its dual goals of innovation and solvency integrity, insurers operating in the state will need to stay nimble — and prepared.
