Infosys [Get Quote], Wipro [Get Quote], Satyam [Get Quote] and a host of other information technology-enabled services companies as well as business process outsourcing ventures are doubling their crime protection covers.

At the same time, insurance companies providing liability insurance, are declining blind coverage of third party losses even under a crime policy.

This follows the recent expos� by British tabloid The Sun of an Indian BPO employee selling classified information and siphoning off overseas customers' funds. V Ramakrishna, managing director, India Insure, an insurance brokerage firm, said this had heightened the risks for the $3.8 billion BPO industry.

Outsourcing and India: Complete Coverage

This can have negative ramifications for the Indian industry as foreign clients insist on third party coverage before signing any contractual agreements with the BPOs. Third parties are essentially the clients of the foreign company that outsources to an Indian BPO.

For instance, customers of Citibank can file a lawsuit against the bank, which, in turn, will be a cost to be borne by the insurance company dealing with the Indian BPO.

"With the risk perception increasing, insurance companies are declining to blindly cover third party losses in the wake of recent incidences," said Ramakrishna. Crime insurance is an extension of a professional indemnity cover aimed to protect a company against frauds.

Today most Indian ITeS and BPOs have bought professional indemnity cover to the extent of $ 2-5 million. They were expected to double their limits especially in the case of BPOs handling sensitive data related to mutual funds, banking and insurance, said insurance company officials.

About 15-20 per cent of the entities in the BPO and IT industry have sought crime insurance cover in the range of $5 million. Professional indemnity cover was far more popular with coverage to the extent of $75-80 million, said Ramakrishna.

Professional indemnity cover is a pre-requisite for Indian BPOs when they take on an overseas client. With India growing to be the most preferred country for outsourcing, this has added to the need for increasing the amount of PI cover as more clients are added, said BPO executives.

Crime insurance used to earlier be considered as a licence for employees to commit crimes and hence was not very popular. Today with the changing situation, BPOs and IT companies have realised the danger of not having cover in place.

"BPOs operating on wafer thin margins. This means they could end up losing heavily should they end up facing litigation charges in the event of a fraud," said Ramakrishna.

Internationally, companies lose about 1-2 per cent of their revenues annually on fraud and this cost comes straight off their bottomlines.

Future Tense

What it covers

• Loss sustained plus costs
• Costs related to damage control exercise
• Dishonest, fraudulent or reckless act of employees

What it does not

• Loss discovered prior to purchase of policy
• Acts of employees with known criminal records
• Fines, penalties and other uninsurable items