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Insurance outsourcing - What are the requirements?

Source: Asia Insurance Review | Oct 2014

Introduction
In March 2013, the Office of Insurance Commission (OIC) issued the first comprehensive set of regulations on outsourcing activities of insurers (Outsourcing Regulations). 
 
Under the Outsourcing Regulations, operational functions are categorised as: (i) “core functions”, which cannot be outsourced; (ii) “support functions”, which can be outsourced with the specific approval of the OIC; and (iii) “other functions”, which can be freely outsourced. 
 
From our verbal discussions with the OIC, the lists of core functions, support functions and other functions set out in the Outsourcing Regulations are not intended to be exhaustive. The OIC will, from time to time, issue additional regulations on various additional activities. 
 
Outsourcing requirements
For outsourcing of support functions, the Outsourcing Regulations prescribe broad principles (as opposed to prescriptive requirements) which must be satisfied, including:
 
insurer must remain ultimately responsible to the insured for the outsourced activities;
service provider must be in a sound financial position and has appropriate skills/resources to perform the outsourced activities;
continuity of business operations must be ensured if the service provider cannot perform the outsourced activities;
there must be an outsourcing contract with provisions dealing with, at a minimum, the matters prescribed in the Outsourcing Regulations, including:
there must be on-going monitoring of the service provider by the insurer.
 
There is no prohibition against engaging a related party or a group company to provide outsourcing services. There are no requirements that the service provider must have a presence in Thailand or that the outsourced activities must be carried out in Thailand. 
 
Please note that where an outsourcing arrangement involves a transfer of customer information to a third party or allow a third party to access customer information, there may be data privacy issues which are beyond the scope of this article.
 
Core functions
Under the Outsourcing Regulations, the following “core functions” cannot be outsourced:
 
solicitation activities, which can only be carried out by the insurer and licensed agents and brokers;
underwriting decisions – the decision whether or not to underwrite the risk;
approving claims – the decision whether to approve or reject a claim; and 
loss adjustment – the loss adjuster must be approved by the OIC and must be an independent contractor of the insurer. 
 
Support functions
Under the Outsourcing Regulations, the following “support functions” can be outsourced with the specific prior approval of the OIC:
paying a claim under an accident, health or travel insurance policy on behalf of the insurer; and
paying a claim of up to THB10,000 (US$311) under an accident and health micro-insurance policy. The service provider must hold an e-payment license from the Bank of Thailand.
 
Other functions
Under the Outsourcing Regulations, the following “other functions” can be freely outsourced:
 
claims advisory services, ie collecting claims documents and information for the insurer to decide whether to accept or reject the claim;
IT services;
accounting and internal audit services; and
security and cleaning services.
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