Novel insurance to help BPO firms cover breach

Insurers are fine tuning their traditional "errors and omissions" policies to explicitly include breach of contract, reports Prerna K Mishra.

india Updated: Nov 06, 2006 20:28 IST

The Indian business process outsourcing (BPO) sector which has been dogged by data theft controversies has found new friends in the insurance sector. Insurers are fine tuning their traditional "errors and omissions" policies to explicitly include breach of contract, which is a critical risk for service industries.

This would give the information technology-enabled service (ITES) companies a new handle to deal with instances like those involving data theft where they are held liable for breach of contractual obligations by clients. Current insurance policies are ambiguously drafted, industry officials say.

The direct commitment to explicitly cover breach of contract has come surprisingly from IFFCO-TOKIO General Insurance Co. Ltd. (ITGI) - a joint venture between the Indian Farmers Fertilizer Co-operative and The Tokio Marine & Nichido Fire Insurance Co. They have included breach of contract as a feature in their policy specifically designed to protect India's software and service companies. The policy has been launched through a tie-up with UK-based specialist technology underwriter, Hiscox Plc.

“Indian technology companies are increasing becoming multinational. We recognized the need for a policy to protect Indian vendors against explicit breach of contract in addition to insuring them against litigation due to failure of software, deficiency in consultancy and failure of BPO units resulting in delays, systemic errors and technology failures,” said IFFCO-TOKIO's managing director Ajit Narain.

Raman Roy, chairman of BPO start-up Quattro, a pioneer in the country's BPO industry who set up operations for American Express and General Electric Co earlier, told Hindustan Times that in the absence of any Indian tie-ups, most technology companies were using international vendors to cover errors and omissions.

"It is encouraging to see that Indian partners are showing the confidence to tread this uncharted territory," he said.

The sector, already plagued by a staff attrition rate of about 30 per cent, has been in addition trying to fight pilferage of personal data of foreign clients as well as intellectual property theft by exiting employees. Now they have an option to be insulated against infringement of intellectual property, breach of confidence or infringement of a right to privacy, defamation and payment for outstanding fees, Narain said.

With complex issues related to dealing with more than one jurisdiction, BPO companies have been shying away from sharing direct liability for breach of contract.

“In a way, the intent of every policy is to cover liability arising out of errors or omissions which in more cases than not is an indirect breach of contract. We always include unintentional breach of contract in writing such a policy. The problem so far has been with players writing ambiguous policies which create problems during the time of the claim,” said ICICI Lombard's national manager in the liabilities business, Anuj Tyagi.

First Published: Nov 06, 2006 20:28 IST