Insurers will soon find it tougher to outsource activities as the Insurance Regulatory and Development Authority of India (IRDAI) is set to tighten norms.

According to the proposed IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2016, every insurer should put in place a comprehensive outsourcing policy duly approved by the board.

In addition to approval of the policy, the board will also be responsible for clearing a framework to evaluate the risks and materiality of all existing and prospective outsourcing.

This will include assessing management competencies for handling the outsourcing arrangements, given the nature, scope and complexity.

“Undertaking periodical review of outsourcing strategies and arrangements, and establishing a comprehensive risk management programme to cover the risks associated with the outsourced activities will also be the responsibility of the board,” the regulator said in an exposure draft.

According to the draft report, outsourcing activities should be distributed amongst a reasonable number of outsourcing agencies to ensure there is no concentration of risks.

Better structure

“The proposed regulations are trying to give a more structured and better shape to outsourcing activities by clearly defining core and non-core activities,” Puneet Sahni, Head-Product Development, SBI General Insurance, told BusinessLine , adding that the new norms will “positively” impact business processes and customer interests.

A host of activities such as processing, premium collection and claim verifications are generally outsourced in both life and non-life insurance.

The proposed norms should bring in more accountability as outsourcing relationships will be governed by written outsourcing agreements that are legally binding for a specified period that clearly describe all material aspects of the outsourcing arrangement, including the rights and responsibilities of all parties.

Though IRDAI has earlier issued some guidelines, this is for the first time that comprehensive regulations governing outsourcing are being rolled out. “On comprehensively examining the extant norms on outsourcing, the Authority proposes to issue the new regulations,” Yegna Priya Bharath, Joint Director (Health), IRDAI, said.

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