Insurance Regulatory & Development Authority of India (IRDAI) has recently introduced a draft that prohibits the insurance industry to outsource their integral functions. These guidelines have been implemented immediately.
A glance on the list of core activities:-
- Underwriting policies
- Product Design
- Actuarial Functions
- Enterprise wide risk management
- Investments made by insurers
- Fund Accounting
- Admission or Rejection of insurance policy claims
- Bank Reconciliations
- Policy holder’s grievance redressal
- Approving advertisements
- Appointment of Surveyors or loss assessors
- Compliance with KYC etc.
Why the ban?
All the aforementioned core activities are risk based and involve technical complexities, which require maintenance of high and professional standards in delivering these activities. In light to complexities involved in these activities, the regulator banned their outsourcing from third parties.
IRDAI has emphasized that these functions should be handled by Insurance companies and the professionals hired by them to execute these tasks. It is because that such outsourcing may compromise the reputation, business conduct and intrinsic control of insurance companies.
What is required by insurance companies after the immediate implementation of guidelines?
The insurers will have to terminate all the outsourcing contracts entered in violation to these guidelines. The time limit can be relaxed upto 3 months by IRDA, depending on the circumstances of the cases presented before it.
What about online issuance of policies/payments of insurance premium?
According to IRDA guidelines, the net-banking or e-wallet services outsourced by insurers must produce receipts instantly against the online payments made by the policy-holders. The objective here is to ensure the validation of policy-holders rights.
What activities can be outsourced by insurance companies?
IRDA has given green signal to outsource certain activities by the insurance companies i.e. TPA, usage of e-wallets, detective agencies, forensic labs, cheque pick-up provided entities engaged in cheque pick-up activities should have a net worth of minimum Rs.10 crores.
In addition to this, IRDA has asked the insurers to insure the diligence of such outsourcing companies before signing the contracts. The maximum amount entrusted to be collected and picked by ‘cheque pick-up entities’ in a financial year should not exceed 3 times the renewal commission earned by the entity in previous financial year.
The big question now is, how efficiently will these insurance companies execute all these activities in-house? There are apprehensions, frowns and dilemmas arising amongst the companies but, since now, the guidelines are in force, insurers have to work on-doubles to perform their best.