According to the definition in Article 13 of the Solvency II Directive, outsourcing' means an arrangement of any form between an insurance or reinsurance undertaking and a service provider, by which that service provider performs a process, a service or an activity, which would otherwise be performed by the insurance or reinsurance undertaking itself. Article 49 of the Directive and Article 274 of the Delegated Regulation contain provisions applicable to outsourcing, some of them only relevant with respect to the outsourcing of critical or important functions or activities.

According to Guideline 60 of the EIOPA Guidelines on system of governance, the decision whether a function or activity is critical or important should be made on the basis of whether this function or activity is essential to the operation of the undertaking as it would be unable to deliver its services to policyholders without the function or activity. With respect to underwriting, Guideline 61 of EIOPA guidelines on system of governance clarifies that "When an insurance intermediary, who is not an employee of the undertaking, is given authority to underwrite business or settle claims in the name and on account of an undertaking, the undertaking should ensure that the activity of this intermediary is subject to the outsourcing requirements."

Within the "EIOPA Final Report on Public Consultation No. 14/017  on Guidelines on the System of Governance" the explanatory text for Guideline 61 states that: "Underwriting is a main activity of any undertaking. As such, underwriting is a critical or important operational function or activity. It is common in most Member States to have insurance intermediaries involved in the underwriting process. These are subject to the Insurance Distribution Directive (IDD). However, where an insurance intermediary is mandated to write insurance business or to settle claims on behalf of the undertaking, this is an outsourced service and, as such, the arrangement is caught by the Solvency II outsourcing requirements. The typical intermediation activities of an insurance intermediary, i.e. introducing, proposing or carrying out other preparatory work for the conclusion of insurance contracts, or concluding such contracts, or assisting in the administration and performance of such contracts, in particular in the event of a claim, as set out in the IDD, are not subject to the outsourcing requirements. In the case of outsourcing of underwriting activities, the application of the outsourcing requirements needs to be analysed taking into consideration the specific requirements applicable under the IDD." Finally, the explanatory text for Guideline 60 states that: "Where functions or activities are partially outsourced it is relevant whether these outsourced parts are per se critical or important."

In view of the above, EIOPA considers that the assessment of an arrangement between an insurance or reinsurance undertaking and a service provider (including an insurance intermediary) should be done on a case by case basis, taking into account the characteristics of the undertakings involved and the content of the arrangement to decide whether it is "outsourcing" or not and whether it is an outsourcing of "critical or important function or activity". Nevertheless, EIOPA acknowledges that:

1.A contract with an insurance intermediary regarding sale of insurances at standard terms and rates would be considered as outsourcing if the insurance intermediary has been granted authority to accept or reject risks (i.e. underwriting) on behalf of the undertaking; such contract could be considered as outsourcing of a critical or important operational function or activity depending on the specific circumstances, in particular the undertaking's distribution model (e.g. in case most of the undertaking's business is underwritten by one or few insurance intermediaries) and the scope of the empowerment granted (e.g. limits of the underwriting capacity for the insurance intermediary).

2.Policy issuance and/or collection of premiums by insurance intermediaries would normally not be considered as outsourcing of a critical or important operational function or activity but part of the ordinary insurance distribution activities.

3.A contract with an insurance intermediary regarding claims handling would not be considered as outsourcing if the role of the insurance intermediary is limited to assist the policyholder/beneficiary in processing the claim with the insurance undertaking. A contract where a claims handler is empowered to accept claims and make claim payments on behalf of the insurance undertaking would be considered as outsourcing; such contract could be considered as outsourcing of a critical or important operational function or activity depending on the specific circumstances.