MANU/IRDA/0013/2011
Authority
: Insurance Regulatory and Development Authority
Circular
No : IRDA/Life/CIR/GLD/013/02/2011
Date
: 01.02.2011
Guidelines on Outsourcing of Activities by Insurance Companies
Reference:
1. INV/CIR/031/2004-05 dated 27th July, 2004
2. INV/CIR/058/2004-05 dated 28th December, 2004
3. RBI/2006/167 DBOD.NO.BO.40/21.04.158/2006-07
4. Regulation 7(c) of IRDA (Registration of Companies) Regulations, 2000
1.
INTRODUCTION
1.1 Insurers in India are increasingly using outsourcing, as a means of both
reducing cost and accessing expertise, not available internally and achieving
strategic aims. 'Outsourcing' may be defined as Insurers use of a third
party (either an affiliated entity within a corporate group or an entity that is
external to the corporate group) to perform activities on a continuing basis
that would normally be undertaken by the Insurer itself, now or in the future.
These outsourcing arrangements are becoming increasingly complex.
1.2 Joint Forum set up by Basel Committee on Banking Supervision,
International Organization of Securities Commissions and International
Association of Insurance Supervisors has devised high-level principles on
outsourcing in financial firms which gives guidance to firms, and to regulators,
in effectively managing risks involved in outsourcing without hindering the
efficiency and effectiveness of firms. Reserve Bank of India also brought out
Guidelines on Managing Risk and Code of Conduct in outsourcing of financial
services vide reference 3 cited above. This circular is issued based on best
practices adopted internationally as outlined in above document. These
instructions are intended to provide direction and guidance to insurers to adopt
sound and responsible risk management practices for effective oversight.
1.3 Regulation 7 (c) of IRDA (Registration of Companies) Regulations, 2000,
clearly sates The applicant will carry on all functions in respect of
insurance business including management of Investment within its own
organization. It has been observed that certain insurers are outsourcing even
core activities such as Investment, Underwriting and Policy servicing. It is not
desirable to outsource the core and important activities which will affect
corporate governance, protection of policy holders, solvency and revenue flows
of insurer.
1.4 In order to ensure proper corporate and regulatory oversight over the
outsourcing of activities of insurers, the Authority has decided to issue
following instructions under Section 14(2) of Insurance Regulatory and
Development Authority Act, 1999. These guidelines apply in addition to the
instructions given vide reference 2 cited above.