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The Insurance Regulatory and Development Authority (Irda) is in the process of finalizing guidelines for outsourcing by life and general insurance companies. Irda will clarify services that insurance companies can outsource to cut costs. Irda is expected to release the guidelines by January-end.
All life insurance companies, through industry body Life Insurance Council, had approached Irda to allow them to outsource few of the services that Irda had defined as core activity. In November 2010, Irda had issued draft guidelines on outsourcing by all insurers.
Irda had said insurers were found outsourcing core activities such as investment, underwriting and policy servicing to third party firms. For example, Irda had defined collection of premium as core activity. Insurers want that to be categorized as non-core activity.
Irda wants insurance companies to cut down costs, but it can’t happen if insurers are not allowed to outsource non-core activities.
Outsourcing helps insurance companies to cut costs. Some of the activities Irda defined as core activities are being outsourced by companies. Not being able to outsource will put pressure on margins of the company.
In the November 2010 circular, Irda has listed processes such as underwriting, claims, product design, investment, premium collections, cheque pickup and banking of cheques, admitting or repudiation of all claims, compliance with AML and KYC as core functions, among others.
Non-core functions include activities such as facility management such as house keeping, security, office boys, PF Trust, internal audit, website development and management, HR services, service tax consultancy and support, TDS filing, compliance with labour laws, data entry including scanning and indexing services among others.
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