MaterialityMateriality

Materiality

9. A material business activity is one that has the potential, if disrupted, to have a significant impact on the insurer’s business operations or its ability to manage risks effectively, having regard to such factors as:

(a) the financial and operational impact and impact on reputation of a failure of the service provider to perform over a given period of time;

(b) the cost of the outsourcing arrangement as a share of total costs;

(c) the degree of difficulty, including the time taken, in finding an alternative service provider or bringing the business activity ‘in-house’;

(d) the ability of the insurer to meet regulatory requirements if there are problems with the service provider;

(e) potential losses to the insurer’s customers and other affected parties in the event of a service provider failure; and

(f) affiliation or other relationship between the insurer and the service provider.

10. For the purposes of this Prudential Standard, the internal audit function must be treated as a material business activity.