A leading expert has welcomed the UK regulator’s latest guidelines on outsourcing in the life insurance sector adding that underwriters and IFAs need to ensure the quality of any third parties.
Yesterday the FCA set out its finding from its review of outsourcing and third-party service providers in the life insurance sector, and Paul Dyer, (pic) Head of Regulatory Risk and Assurance at outsourcing and service provider Huntswood, and former deputy chief risk officer at the FCA believed the review was timely.
“Part of an ongoing FCA focus on the risks in firms outsourcing and supply chains, this review takes a balanced approach to the risks posed by (a limited) number of third parties to the life sector, helpfully highlighting both good and bad practice.
“Outsourcing presents a strategic opportunity for large firms to save costs and improve delivery in the face of increased competition. However, this report serves as a reminder of the accepted reliance upon a limited number of quality outsource service providers and goes to the heart of operational resilience risks, which remain a regulatory priority.”
He added: “The complexity of life operations and in many cases aging technological infrastructure creates a big challenge for these firms in managing continuity, particular with third parties. Several firms may be creating a risk of poor outcomes for customers arising from poor management and governance of outsourced activities. Firms should ensure best practice by integrating customer outcomes into all compliance-related issues.
“Understanding and appropriately addressing potential consumer harm should be an essential part of any process, outsourced or otherwise. It is critical that any third-party arrangements are well vetted, monitored and assured across the gamut of risks they pose. Outsourcing arrangements demand robust contract exit-planning, continuity planning, supporting governance and ongoing assurance to ensure they don’t pose undue risk – something that this review highlights could be done better. A trusted outsourcing partner should be able to help clients navigate such challenges to ensure operational continuity and resilience in the face of regulatory and market adversity.”