Insurers offering UBI must consider outsourcing risks: Quebec’s AMF

Insurers providing usage-based insurance (UBI) in Quebec are advised that they must manage not only their own risks, but also those associated with outsourced activity, Julien Reid, senior director of financial institutions oversight and deposit insurance for the Autorité des marchés financiers de Québec, said during Insurance Telematics Canada in Toronto Thursday.

The insurer is ultimately responsible for the distribution of its products and programs, including remaining responsible for the compliance of their outsourcing arrangements, Reid made clear. “The insurer cannot say, ‘Well, if the service provider that takes care of something is not under my responsibility,’ at the AMF, we’re saying that the expectation is you will be ultimately responsible if something happens,” he told attendees.

“The choice of the service provider is, of course, of the utmost importance,” Reid emphasized. A number of material factors must be taken into account when choosing a provider, he noted, including the impact on the insurer’s efficiency.

“If a service provider doesn’t do the job correctly, what will be the impact on the insurer with regard to its own operations or its reputation?” he asked.

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Other issues that must be considered in selecting a provider are the custom outsourcing arrangement, as well as both the degree of difficulty and the time needed to replace the service provider should something goes wrong.

“If something happens with your service provider, what’s your plan B, what’s your plan C? You have to put that in writing, you have to be able to show that to the AMF when the AMF assesses your management or interpretation of the standards with regards to outsourcing risks,” Reid said.

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Another issue to consider is concentration. While an insurer may consider the issue from its specific point of view when selecting a service provider, AMF looks at concentration more from a holistic standpoint. “We could find that a majority of insurers do business with the same service provider. So what happens if something happens with that service provider?” he said.

For insurers, Reid advised, “What’s your plan B, plan C? You might need a plan D if other insurers have the same plan Bs and Cs.” Insurers “need to have policies and procedures that show us, as supervisors, how they manage the inherent risks of outsourcing the UBI program,” he said.