IC tightens rules on BPO activities of insurance firms

Insurance and reinsurance firms are now required to secure the approval of the Insurance Commission (IC) before they can enter into business process outsourcing (BPO) contracts to protect the industry and the insuring public, according to the regulator.

On Sept. 12, Insurance Commissioner Dennis Funa issued Circular Letter 201949, tightening the rules on the outsourcing activities of insurance companies.

“An insurer or reinsurer shall not enter into an outsourcing agreement or contract with a BPO provider unless said agreement or contract has been pre-approved by this commission,” the circular read.

Funa said this is necessary to ensure that the contacts are compliant with the provisions of Circular Letter 2018-72, dated Dec, 28, 2018, “in the interest of protecting both the insurance industry and the insuring public.” CL 2018-72 provides the general guidelines on the BPO activities of insurance companies.

Under the new rules, insurers and reinsurers must submit an application for preapproval of their outsourcing contracts to the IC’s Regulation, Enforcement and Prosecution Division (REPD).

Upon receipt of the application, the REPD will determine whether or not the proposed outsourcing agreement or contract violates the provisions of CL 2018-72 and submit its recommendation to the Insurance Commissioner whether to approve or disapprove the application.

The IC chief said the compliance to the guidelines on BPO outsourcing would be part of the commission’s examination into the affairs and methods of doing business of the insurer or reinsurer.

Last year, Funa issued CL 2018-72 to “effectively balance the interests of protecting the insuring public...and developing and strengthening the insurance and reinsurance industries through BPO activities.”

The old circular provides that insurance companies must, at all times, be responsible for ensuring that the outsourced activities are conducted in a safe and sound manner, and in compliance with applicable laws, rules and regulations.

They must ensure the continuity of business operations if the BPO provider cannot perform the outsourced activities.

“The insurer or reinsurer must continuously monitor the BPO provider in the performance of the outsourced activities during the effectivity of the outsourcing agreement or contract,” the old circular read.

However, Funa said solicitation activities, the decision whether or not to underwrite risks, the decision whether or not to approve or reject an insurance or reinsurance claim, and loss adjustment cannot be outsourced, and should only be undertaken by the insurer.

He said the insurer or reinsurer may only engage advisory or consultancy services of a BPO provider in the performance of the said activities.

Lastly, the circular reminded insurance firms and the BPO provider to mutually observe and comply with the provisions of Republic Act 10173, otherwise known as the Data Privacy Act of 2012.