Irda bans outsourcing of core activities by insurance firms

Mumbai: Insurance Regulator Irda has announced the dos & don'ts of outsourcing in the fast growing insurance industry Core activities including underwriting, product design and all actuarial functions and enterprise wide risk management, investment and related functions, fund accounting, including NAV calculations, admitting or repudiation of all claims, bank reconciliation, policyholder grievances redressal, approving advertisements, market conduct issues, compliance with AML, KYC cannot be outsourced by the insurers, said Irda.

Insurers should not engage in outsourcing that would result in their internal control, business conduct or reputation being compromised or weakened, said Irda.

The new guidelines come into force with immediate effect. The insurers have to terminate all existing outsourcing contracts entered into in contravention of these guidelines before June 31. Beyond the time period specified herein, the Irda may relax time limit by 3 more months, on a case to case basis, in respect of existing contracts that are in contravention...of this circular.

Irda has said that the entities engaged for cheque pick-up shall have a net worth of at least Rs 10 crores. However, these conditions are not applicable to scheduled commercial banks and post office.

Such collection and pick up by agents who have not procured such business is regarded as outsourcing.

However, insurers need to carry out the due diligence on individual agents and corporate agents while outsourcing the same.

However, the total amount entrusted to be collected and picked up by agents and corporate agents for a given financial year should not exceed three times the renewal commission that the said agent earned in the preceding financial year.

It is also a prerequisite for carrying out activity that such agents are in existence at least for a period of two years. The insurer has to assign this activity to agents and corporate agents by..