New law on outsourcing for Hungarian insurance companies

Hungary

Amendments to Act CXVI of 1995 on Insurance Institutions and the Insurance Business, as amended, of the Republic of Hungary (the "1995 Insurance Act") came into effect on 1 January 2003. The amendments relate to, among other things, the outsourcing of activities by Hungarian insurance companies. Until now, insurance companies in Hungary have been restricted when delegating their activities to third parties and even though certain restrictions still remain in place, the regulations have become more flexible.

The amended 1995 Insurance Act still provides for a number of activities which insurance companies must do themselves, such as designing their own institutional structures, underwriting risks, maintaining customer relations, carrying out internal controls, balance sheet analysis and guarantee capital calculations, making personnel-related decisions, and contracting reinsurance.

Outsourcing of the following activities has to be reported to the Hungarian Financial Supervisory Authority (PSZAF):

  • actuarial duties
  • electronic data processing (although this previously required approval from the PSZAF)
  • settlement of claims
  • investment and wealth management.

All other activities can now be outsourced without the approval of, or notification to, the PSZAF. The former exhaustive list of activities which were allowed to be delegated without the approval of the PSZAF and which were "only" required to be reported, has been abolished.

In order to secure third party interest and in addition to the measures that were effective prior to 1 January 2003 (e.g. certain mandatory provisions of outsourcing agreements and the right of control over the outsourced activities remaining with the insurance company), the amendments provide for further mandatory provisions in outsourcing agreements and for joint and several liability of the entity performing the outsourced activities and the insurance company for damage caused to third parties by the entity performing the outsourced activities.

For further information please contact Dr Gabriella Ormai at [email protected] or on 00 36 1 4834800.