Insurance Compliance in BPO

Insurance is a vital aspect of enterprise growth. It protects companies from financial losses due to unforeseen circumstances, ensuring they don’t need to touch their savings during emergencies. Because it involves confidential data, insurance businesses need to strengthen their defense against potential threats.

Many insurance companies adopt business process outsourcing (BPO) to enhance their data security and operational efficiency. They also benefit from improved access to resources.

However, you might wonder: Doesn’t outsourcing’s remote setup make sensitive information more susceptible to threats?

Fret not! This article details how BPO providers comply with insurance regulations to safeguard crucial data and processes.

Critical insurance policies that impact outsourcing

Outsourcing routine functions to third-party service providers lets insurance businesses increase cost savings and daily productivity. Many businesses aim to focus on their core competencies, so they continuously work with BPO companies to achieve these advantages.

As a result, the global insurance BPO market has experienced upward growth. Mordor Intelligence expects the industry to reach $7.08 billion in revenue in 2024, expanding at a compound annual growth rate (CAGR) of 4.76% by 2029.

However, confidential data and financial processes are often delegated to BPO providers. Thus, insurance companies must understand the sector’s security measures and efforts to comply with relevant regulations. This knowledge helps avoid costly mitigation initiatives and operational delays.

Before signing an official insurance business process outsourcing agreement, explore the following insurance regulations that indirectly impact various BPO hubs:

The Unfair Insurance Practices Act of the U.S.

The Unfair Insurance Practices Act is a regulatory framework in the United States that aims to safeguard consumers from deceptive practices in the insurance industry. It sets standards and guidelines for insurance companies regarding policyholders.

This law indirectly impacts BPO firms. It primarily oversees the conduct of insurance providers rather than the third-party companies themselves. However, service vendors operating across the U.S. must still avoid the following actions:

• Illegally publish personal information and claims data
• Enter into agreements to commit an act of boycott, coercion, or intimidation
• Discriminate individuals based on race, religion, and nationality, among others
• Cancel or refuse insurance policies without proper consideration or permission
• Fail to respond to written and oral inquiries regarding claims processing
• Decline claims without performing reasonable investigation using all available data
• Attempt to settle a claim for less than the agreed-upon amount

Non-compliance with this law results in fines, lawsuits, and cease-and-desist orders. In Connecticut alone, the total cost of violations ranges from $50,000 to $250,000. The sanctions also include license suspension or revocation. 

The Insurance Code of the Philippines

Also titled Republic Act No. 10607, the Insurance Code sets policies and procedures to oversee insurance and reinsurance transactions in the Philippines. The law makes registering, licensing, and managing insurance companies, agencies, brokerages, and related stakeholders easier under the direction of the Insurance Commission (IC).

The decree bans unfair competitive practices and mandates ethical behavior in the insurance sector. It also establishes mechanisms for dealing with insurance claims and disputes. The law sets these insurance regulations for BPO arrangements:

• The insurer/reinsurer shall ultimately take responsibility for conducting safe outsourcing activities. 
• The third-party company must be financially stable and capable of delivering high-quality BPO services.
• The insurer/reinsurer must ensure continuity of operations if the BPO company cannot do so.
• The BPO client must frequently monitor the service provider’s performance throughout the contract. 
• Insurance companies and their BPO partners must comply with the provisions of the Data Privacy Act of 2012 when collecting and managing personal information.
• Insurance firms, licensed agents, and brokers must only perform solicitation permitted under Circular Letter No. 2016-61.
• Insurers/reinsurers or certified non-life company underwriters shall only undertake the decision to underwrite risks. 
• BPO companies cannot approve or reject insurance/reinsurance claims. 
• Insurers/reinsurers, licensed independents, or public adjusters must perform loss adjustments.

The Insurance Act 1938 of India

The Insurance Act of 1938 establishes a comprehensive framework for registering and supervising insurance businesses in India. The law founded the Insurance Regulatory and Development Authority (IRDA) to lead and manage the country’s insurance market.

The legislation aims to ensure the industry’s stable and fair operations. It details the requirements for business certification and specifies rules for enterprise conduct. Moreover, the law sets provisions regarding policyholder protection, investments, and solvency margins.

Due to the increased adoption of outsourcing, the Indian government created BPO-focused insurance regulations under the law in 2011. It directs insurers to work with service providers that neither diminish their ability to meet their obligations to policyholders nor violate IRDA’s guidelines. Other rules include:

• BPO companies must employ the same standards as their client organizations when performing non-core insurance services. 
• Insurers must refrain from outsourcing business functions if the practice will only compromise their internal control, conduct, or reputation.
• No insurance companies shall assign their internal audits to third-party teams to avoid a potential conflict of interest.
• BPO vendors shall adhere to all provisions stated under the law and related guidelines.
• Insurers must take responsibility for all acts of omission and contracting when their service providers violate the rules and regulations.
• Insurance businesses shall develop and implement a comprehensive BPO policy detailing service scope, role distribution, and performance assessment criteria.
• Clients must form a robust program to manage risks surrounding outsourced services, such as data entry and customer support. 

The Insurance and Surety Institutions Law of Mexico

The Insurance and Surety Institutions Law (LISF) governs insurance and reinsurance companies in Mexico. It founded the National Insurance and Bonding Commission (CNSF) to oversee the licensing, auditing, and compliance monitoring of businesses in this sector. 

Under the decree, the Sole Insurance and Surety Regulation (the Circular) states that insurance businesses may hire third parties as long as necessary for their operations. The list below shows what BPO functions insurance clients can acquire according to regulations:

• Underwriting support
• Customer service
• Risk and asset management
• Actuarial and legal services
• Information technology (IT) and computer science
• Administrative assistance
• Interim agent management

However, note that the Mexican government enacted a reform for outsourcing in 2021. This amendment allows subcontracting only for specialized, non-core services. The LISF mandates insurance companies to comply with this new labor rule.

Besides, the insurance law requires BPO clients to have risk management strategies and departments. These units must implement a robust system for periodic risk and solvency self-evaluation. It should include proactive measures to address potential issues.

Ways BPO firms comply with insurance regulations

In addition to understanding and adhering to the critical insurance laws above, BPO companies exercise practical ways to further ensure compliance. They conduct thorough due diligence to identify specific licensing and reporting requirements. They help improve customer satisfaction and retention by performing the enumerated actions:

• Establish a dedicated legal and compliance team. This third-party team cooperates with regulatory experts to stay informed about the latest local and international insurance rules. Thus, they can make strategic improvements that match legal updates.
• Develop and implement customized compliance programs. BPO firms tailor these initiatives to relevant insurance regulations. This customization lets them meet specific legal requirements while ensuring a superior customer experience for policyholders.
• Execute comprehensive employee awareness and training initiatives. These efforts ensure BPO workers comprehend and apply the insurance policies and procedures governing their tasks. Providers train them on data protection, confidentiality, and other compliance-related topics.
• Perform data privacy and security measures. BPO companies use encryption strategies, access controls, and multifactor authentication mechanisms to strengthen insurance data protection.
• Clarify contract terms and conditions. BPO firms work closely with insurance providers to specify rules and regulations each party needs to comply with. They outline the roles and responsibilities of both teams in meeting legal obligations.
• Hold regular internal compliance audits. BPO vendors conduct audits to assess whether their processes meet insurance regulations and clients’ rules. The action helps determine and mitigate potential issues before they escalate.
• Use compliance management tools. BPO organizations automatically leverage platforms such as Skillcast and PowerDMS to track and manage regulatory requirements. Such software helps them streamline compliance processes and ensure timely reporting.
• Obtain insurance-specific certifications. BPO vendors pursue relevant accreditations to prove their commitment to complying with the insurance industry’s regulations and best practices.

The bottom line

Insurance companies are among the businesses that use outsourcing to cut operating expenses and boost daily workflows. These enterprises must also be careful when handling sensitive data while working with third-party units.

Fortunately, reliable BPO providers know critical insurance laws to support their clients. They study and align compliance strategies with critical policies to ensure safe and superior service quality. Besides, they execute strategies to strengthen their legal adherence.

Let’s connect and weigh possible BPO options to support your insurance business by streamlining processes and complying with regulations. Unity Communications has readily available human and tech resources to boost your non-core processes.