Irda asks insurers not to outsource core activities

The Insurance Regulatory and Development Authority (Irda) has asked insurers to restrict outsourcing of core activities like claims, underwriting and policy servicing to guard against major financial lapses and protect policyholders.

The insurance regulator has outlined the business verticals of insurance companies which would fall under core activity. They include claims, underwriting, product design, investment, data storage and all IT support.

"It is not desirable to outsource the core and important activities which will affect corporate governance guidelines set by both Insurer as well as Irda, protection of policy holders, solvency and revenue flows of insurer," Irda said in a circular to all insurers.

The non-core activities outlined by Irda include HR services, internal audit, PF trust, telemarketing calls and house keeping, security services among others.

"The insurer shall ensure that outsourcing arrangements neither diminish its ability to fulfil its obligations to customers and Irda nor impede effective supervision by Irda," it said.

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

Irda said the guidelines will take effect immediately and insurers would have to terminate all contracts, which does not comply with the norms by April 1, 2011.

Until now, Irda's guidelines said that insurers cannot outsource core functions. Now, the regulator has named core functions that have to be done in house.