Outsourcing (Auslagerung)
Outsourcing is the contractually agreed transfer of functions or activities of an insurer to a service provider that would otherwise be performed by the insurer itself, and is subject to specific regulatory requirements.
Concept
Outsourcing refers to the contractually agreed transfer of functions or activities, which would otherwise be performed by the insurance undertaking itself, to an internal or external service provider. Under Solvency II, the outsourcing of important or critical functions is subject to particularly intensive regulatory oversight, since the undertaking retains full responsibility for the outsourced function despite transferring its operational execution.
Regulatory Requirements
Central regulatory requirements for outsourcing include a prior, careful assessment of the service provider’s suitability, entering into a written outsourcing agreement with clear provisions on scope of service, control rights, and termination options, ensuring unimpeded access by the supervisory authority to the relevant information, and prior notification to the supervisory authority of particularly important or critical outsourcing arrangements.
Relevance for the Insurer’s Governance
Outsourcing plays a significant role particularly in the transfer of IT services, investment management, claims handling, and certain distribution functions (for example, to managing general agents); the insurer’s governance system must ensure that outsourcing does not lead to an inappropriate increase in operational risk or to an impairment in the quality of the business organization.