4AOutsourcing arrangements

4A Outsourcing arrangements

(1) In these Rules, outsourcing arrangement means an arrangement between a private health insurer and another party (the outsourced service provider), including an entity within the insurer’s corporate group, under which the outsourced service provider agrees to perform, on a continuing basis, an activity that is: (a) currently undertaken, or could be undertaken, by the insurer itself; and (b) a material business activity of the insurer. (2) For the meaning of outsourcing arrangement, an activity is a material business activity if the activity has the potential, if disrupted, to have a significant impact on the insurer’s business operations or the insurer’s ability to manage risks effectively. (3) For subsection (2), the following factors must be considered in determining if an activity is a material business activity: (a) the financial, operational, regulatory or reputational impact of a failure of the outsourced service provider to perform the activity; (b) the cost of the outsourcing arrangement as a share of management expenses; (c) the difficulty, including the time taken, in finding an alternative outsourced service provider or bringing the business activity in‑house; (d) potential losses to the insurer’s policy holders and other affected parties in the event of the failure of the outsourced service provider to perform the activity.

Note: Examples of material business activities: Activities that are material business activities include the following:

(a) an outsourcing arrangement under which an outsourced service provider agrees to provide to the insurer a management function or significant human resource function of the insurer;
(b) a benefit claims processing service;
(c) a service relating to the negotiation of contracts for hospital treatment and general treatment;
(d) an internal audit function.