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 allocating only a specified list of the policies, where the services of the agents that procured the business are no longer available to the insurer.
Where an insurer permits its agent to collect premiums on its behalf, it has to be noted that in such instances the agent is acting on behalf of insurers.
Insurer has to remain accountable to the receipts issued by the authorised agents/intermediaries.
Insurers also need to shall notify policyholders about all the options available for payment.
However, the insurer has to ensure that outsourcing arrangements neither diminish its ability to fulfill its obligations to policyholders nor impede effective supervision by Irda.
Insurers therefore have to take steps to ensure that the service provider employs the same standards in performing the services as would be employed by them if the activities were conducted in house.
Policyholder protection fund on cards
Irda is planning to create a policyholder protection and education fund for the purpose of consumer education. The regulator is currently discussing the sources of funding. However, the legal issues involved in crediting ?unclaimed claims? and ?unclaimed premium refunds,? including the definition of such unclaimed amounts have to be sorted out. The regulator is also discussing whether the fund can be used for purposes of policyholder protection other than consumer education.