Two leading global insurance companies, including Lloyd's, have put together the first specialist cover for companies offshoring call centre and back-office operations in countries like India amid warnings that such relocations involve huge risks.
Besides Lloyd's, Aon, the world's second largest broker, has also put together an outsourcing insurance package.
"With so many companies looking to cut costs by offshoring significant parts of their operations, the speed at which they are able to relocate those operations should disaster strike is paramount in protecting their revenues and reputation," Charles Keville, director of Aon's counter-terrorism and political risk division, said.
"The new policy covers relocation costs in the event of war, terrorism, trade embargo, strike, supplier insolvency and expropriation by the host government."
At least 50,000 jobs from Britain's financial industry have been moved to India over the past two years. Trade unions fear that another 200,000 could follow over the next five years as companies take advantage of the significant cost savings.
India is particularly favoured because it has a large number of well-educated English speakers, but companies have also outsourced to the Philippines, Russia, Mexico, Malaysia, Canada, Israel and China.
The Association of Technology Staffing Companies says low wage rates tell only a fraction of the story about the true cost of moving jobs abroad. It lists risks ranging from local inflation to cultural difficulties and problems with suppliers.
Dell Computer said recently that it will move some of its Indian information technology team back to America after complaints about customer service.
John Eltham, director and head of special risks at independent broker Miler Insurance Services said: "Our clients are now asking for insurance as part of their risk analysis, as 50 per cent of all outsourcing contracts fail within 12 months."
He said Miller has helped companies obtain insurance for overseas manufacturing since 1986, but has now developed a product with Lloyd's underwriters to offer protection against risks associated with overseas outsourcing.
Broker Jardine Lloyd Thompson said the risks of offshoring include discrimination, government interference, forced abandonment of operations, political violence and war.
Matthew Strong, a partner in the firm, said: "Clearly when this kind of operation goes well, it offers numerous benefits to the company in question and cost savings of up to 80 per cent in certain cases."
However, developing nations are vulnerable to instability and political unrest.
"Corporations who have chosen to relocate their service centres should consider what would happen to their business if these service centres suddenly found themselves unable to operate."
Strong said the specialist package Jardine has put together is provoking "a huge level of interest," adding that this is not surprising given that more money was spent on relocation and outsourcing last year than on merger and acquisition advice.
