Outsourcing in the insurance sector
Outsourcing in the insurance sector

The following Insurance & Reinsurance guidance note provides comprehensive and up to date legal information covering:

  • Outsourcing in the insurance sector
  • Legal framework—outsourcing in the insurance sector
  • What is ‘outsourcing’ in insurance?
  • Insurance firms remain responsible for outsourced activities
  • What activities can be outsourced in the insurance sector?
  • Threshold conditions
  • PRA fundamental rules and FCA principles for business
  • Specific requirements for outsourcing in the insurance sector
  • Requirement for insurers to have a written policy on outsourcing
  • Requirement to supervise outsourced activities in the insurance sector
  • more

Legal framework—outsourcing in the insurance sector

The scope of this Practice Note is limited to outsourcing requirements applicable to firms subject to Solvency II requirements. For non-Solvency II firms, see: Non-Solvency II firms.

Many of the rules concerning outsourcing in the insurance sector derive from Directive 2009/138/EC (Solvency II) and the Regulation (EU) 2015/35 (Commission Delegated Regulation). While Solvency II requires implementation into national law, the Commission Delegated Regulation is directly effective and did not need separate implementation.

Equally, while EU instruments lay down baseline rules and requirements, national measures, including Financial Services and Markets Act 2000 (FSMA 2000), the PRA Rulebook and the FCA Handbook, lay down further requirements.

Furthermore, since insurers are dual regulated firms, they will need to comply with both the rules and guidance set out by the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA). This leads to a complex set of requirements in disparate locations.

What is ‘outsourcing’ in insurance?

Article 13(28) of Directive 2009/138/EC, Solvency II defines outsourcing as follows:

‘“Outsourcing” means an arrangement of any form between an insurance or reinsurance undertaking and a service provider, whether a supervised entity or not, by which that service provider performs a process, a service or an activity, whether directly or by sub-outsourcing, which would otherwise be performed by the insurance or reinsurance undertaking itself.’

The FCA