Saudi Arabia: Ins(urance) And Outs(ourcing) In KSA

Last Updated: 11 February 2013
Article by Peter Hodgins and Karim Fawaz

The Saudi Arabian Monetary Authority (SAMA) issued on 17 November 2012 the outsourcing regulation for insurance and reinsurance companies and insurance services providers (the Regulations) operating in the Kingdom of Saudi Arabia (KSA). The regulations are progressive by regional standards, allowing outsourcing to entities outside of KSA, but will need to be carefully considered by insurance sector players. This is not least because the regulations apply equally to functions performed by group entities as well as third parties.

The Regulations require that outsourcing arrangements should be recorded in a legally binding contract. The contract must comply with Saudi law and contain specific details provided by the Regulations, including service levels and performance standards and data protection provisions. The contract should be governed by Saudi law and subject to the jurisdiction of the Saudi courts (unless otherwise approved by SAMA). In addition, it is necessary for an insurance sector player to have analysed the business case and suitability of the outsourced service provider (even where that entity is another group company). Such analysis must be reassessed at least on an annual basis.

It is important to note that dealing with reinsurance companies and insurance/reinsurance brokers, agents, insurance claims settlement specialists (i.e., third party administrators), surveyors, loss assessors, loss adjusters, actuaries, and insurance consultants, is not considered an outsourcing arrangement for the purpose of these Regulations. In addition, any dealings with Service Providers required by law falls outside the scope of these Regulations.

The Regulations differentiate between material outsourcing and non-material outsourcing. In the context of material outsourcing additional requirements apply. For these purposes material outsourcing includes any arrangement which, if disrupted, has the potential to significantly impact on an entity's business operations, reputation or profitability. No material outsourcing is permitted without SAMA's prior written no objection. The outsourcing of material functions, such as underwriting, claims handling, investment, risk management, finance, internal audit, compliance and primary-decision making processes, must be approved by SAMA on a case-by-case basis for each individual function.

Consider the example of an insurer in KSA which utilises the services of a group entity elsewhere in the world to provide specialist underwriting support for specialist classes of business. Such an arrangement may provide the insurer with a competitive advantage where the local market does not have the necessary skills to underwrite such business. Because the outsourcing involves underwriting and may also involve the primary decision-making process being outside of the country it would amount to the outsourcing of a material function in addition to being outsourcing overseas. If such an arrangement is already in place it is necessary to seek a no objection from SAMA retrospectively within 120 days of the issuance of the regulations. Any new arrangement must be submitted to SAMA at least 60 working days prior to the commencement of the arrangement together with supporting information detailing the functions to be outsourced, highlighting such functions as material and the reason for the outsourcing.

In the context of material outsourcing, sub-contracting of services by the outsourced service provider is only permitted with the prior approval of SAMA. This requirement is particularly challenging for large international groups which may provide human resources, finance, information technology, internal audit etc. on a group-wide basis through different entities in the group. Careful consideration will be required in order to determine whether separate contracts with each group entity is more appropriate than a single contract with an appropriate group holding company under which functions are to be sub-contracted to other group entities.  

In other cases of material outsourcing, compliance could become more stringent. For example, outsourcing of investment activities requires, prior to obtaining SAMA's prior no objection, that such arrangement be in compliance with the investment regulations issued by SAMA and the internal investment policies approved by the General Assembly of an insurer which were set in accordance with the investment regulations. Such activities should be addressed in the internal policies of insurers to prevent them from entering into transactions without the approval of their shareholders. Those insurers that have established their investment policies prior to the issuance of the Regulations will need to amend their policies to reflect the requirements for such approvals, if this was not mentioned in the current policies.

Another example is risk management, which is also subject to the risk management regulations issued by SAMA in December 2008. Outsourcing of risk management should be approved in the internal risk management policies of insurers prior to obtaining SAMA's prior no objection.

Third Party Administrators (TPAs) are also significantly affected by these new Regulations. Although they are not many, most of the medical TPAs in KSA are part of a multinational group of TPAs. The requirements set by the Council of Cooperative Health Insurance (CCHI) to qualify TPAs increases the cost of operations on Saudi licensed and qualified TPAs. Accordingly, these TPAs tend to outsource a significant bulk of their claims handling to related entities in other jurisdictions where manpower is much lower.

Another example whereby these Regulations are triggered for TPAs is outsourcing information system management and maintenance. These are also classified as material outsourcing. In practice, TPAs and Insurers deal with information technology companies that provide services of electronic linkage between health service providers, TPAs and insurers. This service is essential to guarantee proper connection and up-to-date exchange of information between parties of a health insurance. Furthermore, TPAs and insurers receive bulks of paper documents. Subsequently, they tend to outsource scanning and data entry services to third parties. These examples have been existing prior to these new Regulations. Accordingly, all insurance sector players have to expose these matters to SAMA to obtain the required approvals, and thus, should make sure these contracts are amended to cover all requirements set forth by the Regulations.

A clear driver for SAMA in introducing the regulations is to ensure that it has visibility of all functions that are outsourced and access to information held by the outsourced service provider. For this reason the regulations include extensive provisions governing the handling of data and include a requirement that all data held by the outsourced service provider is segregated from its other data pools. In the context of outsourcing to an entity outside of KSA it is necessary to have confidentiality provisions in place regarding the services and to ensure that SAMA has a right of access to the entity providing the outsourced service. This right of access must be either in the format of a standard provision approved by SAMA or supported by a legal opinion to be issued by the insurance sector player's lawyers to SAMA.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions