Document ID: chunk:federal_register_of_legislation:F2015L01048:body:0:p3
Version: federal_register_of_legislation:F2015L01048
Segment Type: other
Provision Reference: 
Character Range: 5893–9230

how any ineffective or inadequate performance by the outsourced service provider would be addressed.

Outsourcing arrangement

    12.         In this Prudential Standard, outsourcing arrangement means an arrangement between a private health insurer and another party (the outsourced service provider), including an entity within the private health 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 private health insurer itself; and

       (b)          a material business activity of the private health insurer.

    13.         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 private health insurer's business operations or the private health insurer's ability to manage risks effectively.

    14.         For paragraph 13, 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; and

       (d)          potential losses to the private health insurer's policy holders and other affected parties in the event of the failure of the outsourced service provider to perform the activity.

    15.         Examples of activities that are material business activities include the following:

       (a)          an outsourcing arrangement under which an outsourced service provider agrees to provide to the private health insurer a management function or significant human resource function of the private health insurer;

       (b)          a benefit claims processing service;

       (c)          a service relating to the negotiation of contracts for hospital treatment and general treatment; and

       (d)          an internal audit function.

Risk management

    16.         A private health insurer must, for each material business activity that is subject to an outsourcing arrangement:

       (a)          conduct a risk assessment; and

       (b)          develop and implement risk controls that address any risks identified in the risk assessment; and

       (c)          regularly report to the board on the status of the risks that have been identified and the effectiveness of the risk controls that have been developed and implemented.

    17.         The private health insurer must establish procedures to ensure that all of the insurer's business units are aware of, and comply with:

       (a)          the outsourcing policy mentioned in paragraph 8 to 11 inclusive; and

       (b)          any risk controls that are developed and implemented as a result of a risk assessment mentioned in paragraph 16.

Monitoring arrangements

    18.         A private health insurer must monitor its outsourcing arrangements.

    19.         The monitoring must include: