The Hong Kong Office of the Commissioner of Insurance recently
published a Guidance Note on Outsourcing (GN14),
to regulate the business and operational risks created by the
outsourcing of business activities by insurers.
GN14 sets out the essential issues which an insurer should take
into account in formulating and monitoring its outsourcing
arrangements. These are:
Service Provider Due Diligence
Monitoring and Control
The supervisory approach of the Insurance Authority under GN14
requires insurers to notify the Insurance Authority before entering
into a material outsourcing arrangement (or significantly varying
an existing one) and to provide the Insurance Authority with
information in relation to the outsourcing arrangement, to satisfy
the Insurance Authority that GN14 has properly been complied
GN14 applies to all insurers in Hong Kong and it covers the
outsourcing of services to service providers, be they third parties
(including group companies) or other business units of the same
company (such as foreign branches and head offices).
For insurers incorporated or based in Hong Kong, GN14 will apply
to all outsourcing arrangements. For other insurers, GN14 will only
apply to those outsourcing arrangements relating to their
operations in Hong Kong.
GN14 will come into effect on 1 January 2013.
As at 1 January 2013, insurers with ongoing material outsourcing
arrangements (not expiring before 31 March 2013) are required to
furnish the Insurance Authority with the information prescribed by
GN14 within 30 days.
All insurers are expected to conduct materiality and risk
assessments on all existing outsourcing arrangements within the
First Quarter of 2013.
If existing outsourcing arrangements do not comply with GN14,
then insurers have until the end of 2013 to bring them into
What do you need to do now?
There are now less than 3 months before GN14 comes into force.
As a first step, Insurers should immediately take steps to:
Ensure that appropriate policies are in place to manage
Designate specific staff to manage the outsourcing agenda
Create a central list of all outsourcing arrangements
Review existing outsourcing arrangements to ensure compliance
Determine the level of disclosure to the Insurance Authority
that will be required in respect of existing outsourcing
Determine what changes will be required to existing outsourcing
Consider GN14 for all new outsourcing arrangements
Seek appropriate advice where required
Most insurers should not have to make to many changes to their
existing outsourcing arrangements or policies as GN14 reflects good
practice that should already be in place. However, the new
supervisory approach means that insurers will now need to clearly
document outsourcing policies, processes and arrangements and
satisfy the Insurance Authority that they are doing so.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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