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📑 '''Outsourcing policy''' is a formal governance document that an insurer is required to maintain under [[Definition:Solvency II | Solvency II]] and other regulatory frameworks, setting out the principles, procedures, and controls governing the delegation of business functions or activities to external service providers. In the insurance industry — where [[Definition:Outsourcing | outsourcing]] arrangements span [[Definition:Claims | claims]] administration, [[Definition:Policy administration | policy administration]], [[Definition:Information technology | IT]] infrastructure, [[Definition:Actuarial function | actuarial]] services, [[Definition:Investment management | investment management]], and increasingly [[Definition:Underwriting | underwriting]] via [[Definition:Managing general agent (MGA) | MGAs]] and [[Definition:Coverholder | coverholders]] — the policy ensures that the [[Definition:Board of directors | board]] retains ultimate accountability for outsourced activities and that regulatory standards are not diluted by the involvement of third parties. The requirement reflects a core supervisory principle: an insurer cannot delegate responsibility by delegating a function.

⚙️ A compliant outsourcing policy typically addresses several dimensions. It defines criteria for identifying [[Definition:Critical or important function | critical or important functions]] — those whose failure would materially impair the insurer's ability to operate, meet policyholder obligations, or comply with regulatory requirements — and subjects these to enhanced oversight, including mandatory contractual provisions, [[Definition:Service level agreement (SLA) | service level agreements]], audit rights, and contingency plans for provider failure. The policy prescribes a due diligence process for selecting providers, covering financial stability, technical competence, [[Definition:Information security | data security]] practices, and [[Definition:Business continuity planning (BCP) | business continuity]] capabilities. Ongoing monitoring obligations require the insurer to regularly assess provider performance, manage concentration risk where multiple functions depend on a single vendor, and maintain the ability to bring activities back in-house or transfer them to an alternative provider if necessary. Under Solvency II, the policy must be approved by the [[Definition:Administrative, management, or supervisory body (AMSB) | AMSB]] and reviewed at least annually. Comparable expectations apply under the [[Definition:Insurance Core Principles (ICP) | Insurance Core Principles]] of the [[Definition:International Association of Insurance Supervisors (IAIS) | IAIS]], as well as under specific national regimes such as the [[Definition:Prudential Regulation Authority (PRA) | PRA's]] rules in the UK and the [[Definition:Monetary Authority of Singapore (MAS) | MAS]] guidelines in Singapore.

💡 The growing reliance of insurers on [[Definition:Insurtech | insurtech]] platforms, [[Definition:Cloud computing | cloud]] providers, and specialized third-party administrators has made outsourcing governance far more than a compliance formality. High-profile operational disruptions — including [[Definition:Cyber risk | cyber incidents]] at third-party vendors and failures of [[Definition:Delegated underwriting authority (DUA) | delegated authority]] partners to maintain adequate [[Definition:Internal controls | controls]] — have reinforced the message that outsourcing risk is operational risk in its most tangible form. Regulators have responded with heightened scrutiny, including the EU's [[Definition:Digital Operational Resilience Act (DORA) | Digital Operational Resilience Act (DORA)]], which imposes detailed requirements on [[Definition:ICT risk | ICT]] third-party risk management for financial institutions including insurers. For insurance leaders, a robust outsourcing policy is not just a regulatory artifact — it is the governance backbone that enables the industry's increasingly modular, partnership-driven business models to function without undermining policyholder protection or operational integrity.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Critical or important function]]
* [[Definition:Delegated underwriting authority (DUA)]]
* [[Definition:Operational risk module]]
* [[Definition:Digital Operational Resilience Act (DORA)]]
* [[Definition:System of governance]]
* [[Definition:Solvency II]]
{{Div col end}}

Definition:Outsourcing policy - Revision history

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