What are regulations on outsourcing of insurance companies in Vietnam?

1. What are regulations on outsourcing of insurance companies in Vietnam?

In Clauses 1 and 2, Article 90 of the Law on Insurance Business 2022 (effective from January 1, 2023), outsourcing of insurance companies are specified as follows:

1. Outsourcing is an act of entering into an outsourcing contract between an insurance company, reinsurance company or foreign branch in Vietnam and another entity or person to perform part of the procedures or activities, except the followings:

a) Internal control;

b) Internal audit;

c) Risk management;

d) Insurance product consulting, launching, offering and marketing; arranging for conclusion of insurance contracts.

2. Where part of the procedures or activities directly related to insurance business is outsourced, the insurance company, reinsurance company or foreign branch in Vietnam, as the outsourcing purchaser, shall assume the sole and ultimate responsibility towards the policyholder and take on the following obligations:

a) Formulate regulations on outsourcing management, including rules and regulations binding on the scope of business activities that can be outsourced, framework for assessment of associated risks, criteria for approval of outsourcing contracts and conditions binding upon the outsourcing supplier, ensuring compliance with law. Regulations on outsourcing management must be subject to approval sought from Managing Boards or Boards of Members of insurance companies, reinsurance companies or entities having control over foreign branches in Vietnam;

b) Formulate outsourcing procedures, risk management procedures and procedures for internal control of outsourcing activities and take measures to ensure prevention, mitigation of and timely response to risks arising from outsourcing, especially those related to legitimate rights and interests of the policyholder and the insured;

c) Temporarily suspend, modify or terminate any outsourcing contract when it is established that outsourcing activities may cause adverse impacts on legitimate rights and interests of the policyholder or the insured;

d) Have contingency plans to ensure that business activities are not interrupted in the event that the outsourcing supplier is unable to perform or fails to duly perform responsibilities for outsourcing tasks under terms and conditions of the outsourcing contract;

dd) Conduct regular inspection and supervision of the outsourcing supplier's performance during the effective period of outsourcing agreements in order to ensure outsourced tasks are performed according to quality and progress requirements set out in outsourcing contracts. The outsourcing supplier must manage to perform at least 75% of the outsourced amount of work by itself; if the outsourcing supplier wishes to hire any subcontractor to perform part of their amount of work, they must seek the prior written approval from the insurance company, reinsurance company or foreign branch in Vietnam as the outsourcing client, and must guarantee that their responsibilities and obligations are kept unchanged;

e) Ensure personal data and information security for clients in accordance with law;

g) Track and keep separate record of outsourcing transactions.

2. What are general regulations on outsourcing contracts of insurance companies in Vietnam?

According to Clause 3, Article 90 of the Law on Insurance Business 2022 (effective from January 1, 2023), general regulations on outsourcing contracts of insurance companies are as follows:

3. An outsourcing contract must be made in writing and include but not limited to the following:

a) Scope of outsourced services, description of outsourced services;

b) Time and location when/where outsourcing takes place;

c) Rights and obligations of the insurance company, reinsurance company or foreign branch in Vietnam as the client and the supplier of outsourced services;

d) Standards and requirements concerning quality of the outsourced services that are completely supplied;

dd) Mechanism and responsibilities for providing information and reports by the outsourcing supplier to the insurance company, reinsurance company or foreign branch in Vietnam as the client during the outsourcing period;

e) Contingency and response plans against loss or damage, compensation paid by the outsourcing supplier in the event that the outsourcing supplier fails to carry out or is in breach of terms and conditions of the outsourcing contract;

g) Supervision, control and audit mechanism for performance of the outsourcing supplier; requirements binding the outsourcing supplier to track outsourcing transactions and ensure that outsourced service transactions in the insurance industry must be accounted for separately from those in other industries; the insurance company, reinsurance company or foreign branch in Vietnam must account for their outsourced service transactions independently;

h) Regulations on restriction on subcontractor agreements;

i) Client data privacy and protection policy;

k) Dispute settlement facility.

Best Regards!