Wednesday, December 29 2004 17:34 Hrs (IST) - World Time -

New Delhi: Ceding to the demands of private life insurers, Insurance Regulatory and Development Authority (IRDA) has allowed them to outsource some of the investment functions including custodial services and calculation of Net Asset Value (NAV) of unit-linked products (ULIP).

In a circular, IRDA chairman C S Rao, however, said the custodial service provider should maintain confidentiality and protect data from "intentional or inadvertent" disclosure to unauthorised persons.

"Keeping in view the representations by the new private insurance companies regarding the calculation of NAV under ULIP, the Authority hereby permits outsourcing of calculation of NAV," Rao said in the order.

The new private life insurers had said outsourcing the function of calculation of NAV would be advantageous in view of higher investments required in acquiring hardware and software and especially for the small-sized funds.

Also permitting life insurers to outsource the custodial services, it said the outsourcing arrangement in no way takes away the obligations, accountability and responsibilities of the insurer to its policyholders.

IRDA said the custodial service provider should have expertise in NAV computation, an adequate system to address operational risks from technology, errors and frauds, a comprehensive and effective system for disaster recovery and periodic testing of back-up facilities.

The outsourcing agreement should have an exit clause providing for smooth transfer of records and functions to the insurer or its contractor in the event of termination of contract without "onerous" penalties, it said.