On April 20, 2017, the Insurance Regulatory and Development Authority of India (‘IRDAI’) issued the IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2017 (‘Outsourcing Regulations’), which supersede the guidelines previously issued on February 1, 2011. Some of the salient features of the Outsourcing Regulations are set out below:
i. “Core” functions of insurers have been prescribed, which are prohibited from being outsourced, including investment functions, product designing, actuarial functions (including risk management) and redressal of policyholders’ grievances.
ii. The board of directors of an insurer is required to: (a) approve and put in place an outsourcing policy; and (b) constitute a committee comprising of key management persons, which has to mandatorily include the chief risk officer, chief financial officer and chief of operations. The committee is, inter alia, to be responsible for effective implementation of outsourcing policy, actions undertaken by each outsourcing service provider (‘OSP’), by annual performance evaluation of each OSP and reporting exceptions to the board of directors.
iii. Outsourcing arrangements are to be governed by legally binding agreements for a specified period which describe all important aspects of the arrangement, and can be subject to periodical renewals, if necessary.
iv. To avoid conflicts of interest, outsourcing arrangements with related parties / group entities of insurers or insurance intermediaries registered with IRDAI (‘RPs’) are to be avoided. Where such arrangements are proposed to be implemented, insurers are required to ensure that the consideration amount agreed upon with the RP, and modifications thereon (if any) will be subject to specific approval of the outsourcing committee.
v. Existing outsourcing arrangements to which these Outsourcing Regulations become applicable are to be appropriately amended within 180 days from the date of coming into effect of the Outsourcing Regulations to ensure compliance. All outsourcing arrangements with an annual pay-out either per OSP / activity of INR 1 crore (approx. USD 155,100) or more, are to be reported to the IRDAI in a prescribed format within 45 days from the close of a financial year.