1
IRDA/Life/CIR/GLD/013/02/2011
01
st
February, 2011
Guidelines on Outsourcing of Activities by Insurance Companies
Reference: 1. INV/CIR/031/2004-05 dated 27
th
July, 2004
2. INV/CIR/058/2004-05 dated 28
th
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 “Insurer’s 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.
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