IRDA asks insurers not to outsource core activities

NEW DELHI: Issuing guidelines on outsourcing, insurance regulator IRDA today said that insurers should not outsource core activities like investment and grievance redressal as it may dilute internal controls.

The Insurance Regulatory and Development Authority (IRDA) has outlined the business verticals of insurance companies which would fall under core activity. They include underwriting, customer identification and fund accounting among others.

"The insurer shall ensure that outsourcing arrangements neither diminish its ability to fulfill its obligations to policyholders nor impede effective supervision by IRDA," IRDA said in a circular to all insurers.

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.

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

The non-core activities outlined by IRDA include payroll management, claim processing over overseas medical insurance, call centre and house keeping among others.

IRDA said the guidelines will take effect immediately and insurers would have to terminate all contracts, which does not comply with the norms by June 31, 2011.