Life insurance (prudential standard) determination No. 3 of 2006 - Prudential Standard LPS 231 - Outsourcing
Notification requirementNotification requirement
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Notification requirement
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A life company must notify APRA as soon as possible after entering into an agreement to outsource a material business activity to a service provider and in any event no later than 20 business days after execution of the agreement between the life company and the service provider. This notification requirement applies to all outsourcing of material business activities.
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Where a life company notifies APRA of a new outsourcing agreement, it must also provide a summary to APRA of the key risks involved in the outsourcing arrangement and the risk mitigation strategies put in place to address these risks. APRA may request additional material where it considers it necessary in order to assess the impact of the outsourcing arrangement on the life company’s risk profile.
Offshoring arrangements – requirement for consultation
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A life company must consult with APRA prior to entering into any offshoring agreement involving a material business activity so that APRA may satisfy itself that the impact of the offshoring arrangement has been adequately addressed as part of the life company’s risk management framework.
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If, in APRA’s view, the offshoring agreement involves risks that the life company is not managing appropriately, APRA may require the life company to make other arrangements for the outsourced activity as soon as practicable.
Monitoring the relationship
- The life company must ensure it has sufficient and appropriate resources to manage and monitor the outsourcing relationship at all times. The type and extent of resources required will depend on the materiality of the outsourced business activity. At a minimum, monitoring must include:
(a) maintaining appropriate levels of regular contact with the service provider. This will range from daily operational contact to senior management involvement; and
(b) a process for regular monitoring of performance under the agreement, including meeting criteria concerning service levels.
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The life company must advise APRA of any significant problems that have the potential to materially affect the outsourcing arrangement and, as a consequence, materially affect the business operations, profitability or reputation of the life company.
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When a life company terminates an outsourcing agreement it must notify APRA as soon as practicable, and provide a statement as to the transition arrangements and future strategies for carrying out the outsourced material business activity.