In order to ensure that insurers follow prudent practices for management of risks arising out of outsourcing, Insurance Regulatory and Development Authority of India (Irdai) has proposed new norms.
Insurers cannot outsource activities such as investment and related functions, fund management including NAV calculations, compliance with AML and KYC, product designing, decision making in underwriting and claims functions and policyholders’ grievances redressal.
Policy servicing will be the core activity for the insurer, who will be responsible for the services rendered. However, the activities that support policyholder servicing can be outsourced at the discretion of the insurer.
Where collection of premiums is outsourced, insurers will have to put in place procedures for issuance of premium acknowledgements instantaneously to policyholders on collection of premiums.
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Board of directors will put in place an outsourcing policy to cover the frame-work for assessment of risks involved in outsourcing including confidentiality of data and quality of services.
The board should put in place an annual review of the outsourcing pollicy, keeping in mind changes in internal and external environment impacting the out-sourcing arrangements. It will be respon-sible for degree of due diligence required for other non-core outsourcing activities.
The outsourcing arrangements will be governed by written agreements that are legally binding for a specified period, subject to periodical renewal.
Outsourcing contracts will have clauses on information and asset ownership rights, IT, data security and protection of confidential information.
The contract will have clauses on guarantee or indemnity from outsourcing service provider towards his commitment including liability for any failure.
Insurers will have to ensure that the outsourcing service provider’s security policies, procedures and controls will enable it to protect confidentiality and security of policyholder’s information.