The findings show that European undertakings make an increasing use of outsourcing, mainly in the field of technology, and that the level of outsourcing varies greatly across the European Economic Area.
The European Insurance and Occupational Pensions Authority (EIOPA) published today the report of the peer review on outsourcing.
The peer review assessed the overall maturity of the framework
implemented by national supervisory authorities (NSAs) to supervise the
outsourced activities of insurance and reinsurance undertakings. The
objective of the peer review was to identify gaps, areas of improvements
and best practices to promote consistent and effective supervision in
this regard.
The findings show that European undertakings make an increasing use
of outsourcing, mainly in the field of technology, and that the level of
outsourcing varies greatly across the European Economic Area. These
differences in the penetration of outsourcing help explain why Member
States’ supervisory frameworks are also at different stages of maturity.
The majority of NSAs focus their supervisory assessment of
outsourcing-related risks at notification, that is, before undertakings
would outsource certain functions, whereas others opted for a lighter
notification process combined with more intensive ongoing supervision. A
few authorities implemented both a robust notification assessments
together with intensive ongoing supervision.
An analysis of the tools used by NSAs reveals that even though
on-site inspections are both time and effort-intensive, they are the
most effective tool to verify the overall governance structure around
outsourcing and to confirm whether undertakings comply with Solvency II
requirements regarding outsourced activities. Nevertheless, on-site
inspections specifically focused on outsourcing are not among the most
frequently used instruments by NSAs. While NSA do undertake such
inspections, a review of the outsourcing frameworks is more common
during the overall review of undertakings’ system of governance.
The peer review found that segments of the outsourcing framework and
certain supervisory practices need improvement. To address these, EIOPA
has recommended actions to NSAs in a number of areas. These include
aspects of the outsourcing framework, the structure of the notification
process as well as NSAs’ supervision of the notification content,
information management and supervisory procedures for both off-site and
on-site inspections.
EIOPA has also identified areas where higher supervisory convergence
and/or more clarity regarding supervisory expectations could be
achieved. Therefore, EIOPA will consider conducting further analysis in
three domains:
- the outsourcing of delegated authority (where an insurance
intermediary who is not an employee of the undertaking may underwrite
business or settle claims on behalf of the undertaking);
- the definition of ‘material development’ and the meaning of ‘timely notification’ according to article 49(3) of Solvency II; and
- the supervision of undertakings that make such an extensive use of
outsourcing that it impacts their corporate substance (so-called “empty
shells”).
Next steps
As a follow-up of this peer review, EIOPA will monitor and assess
NSAs’ compliance with the recommended actions. A detailed run-down of
each recommended action and the NSAs to whom they are addressed can be
found in the final report of the peer review.
EIOPA will also consider how to best reflect the overall findings of
the peer review in its work on supervisory convergence and take the
results into account in the implementation of the Digital Operational
Resilience Act (DORA), when applicable.
EIOPA
© EIOPA
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