Private players such as Tata AIG, ICICI Lombard and HDFC Chubb are making inroads into what has till now been an unchartered territory.

Radhika Menon
Sumeet Kaul

Mumbai, June 5

THE recent instances of fraud committed by employees of some BPO outfits in the country have made information technology service providers rush for insurance cover, making this a big growth area for insurers.

Recently, some employees of MsourcE, a Pune-based BPO office, reportedly siphoned off large sums of money from the accounts of its US-based banking client.

The market for IT-related insurance cover is fast growing. Last year, according to industry estimates, the IT insurance market grew by 50 per cent to Rs 300 croreand the trend is expected to continue.

While PSU insurers do not consider IT specific coveras a focus area, private players such as Tata AIG, ICICI Lombard and HDFC Chubb are making inroads into what has till now been an unchartered territory.

ICICI Lombardhas 80 IT companies on its client list. Of these, 8-10 are big ones.

Mr Shivaprasad Krishnan, Head, Liability, ICICI Lombard, said many IT companies have to insure themselves just because it is a contractual obligation. But this year, many companies are seeking to increase the limit of the indemnity.

Information technology-related insurance policies broadly cover the basic areas of technology errors and omissions, special policy for directors and officers and employment practices liability policy. All these are generally customised as per client needs.

In the case of IT companies which are product providers, there is also policy to cover Intellectual Property Rights.

While companies are developing in-house risk models, the demand for IT-specific insurance has been across several sectors.

Mr Farzan Khansaheb, Assistant Vice-President, Tata AIG General Insurance, said: "There is a demand for IT specific insurance from IT firms, financial institutions, pharmaceutical industry and the telecom sector."

As a business that offers coverage for large sums, most companies prefer to share the risk with a re-insurer. A senior official at a PSU insurance company said that the insurance of IT systems is a risky business, requiring a high of level of technology and expertise, which is difficult to keep up with.

Mr Krishnan of ICICI Lombard said: "There is no scientific basis to compute risk. We are forced to assess it by means of past losses. So, year-on-year with more and more data we are trying to shape up a risk model".

According to sources, IT companies that have business exposure in the US and Canada is charged a higher premium. This is because the propensity towards litigation is higher in the US and Canada as compared to India. Mr Ashish Chandra, Head (Legal), Geometric Software Solutions says, "Except for a hand-full of large companies, others in the IT sector buy insurance policies in order to comply with the terms of the contracts with their foreign customers. But I am sure the way in which the IT industry is growing in India, clubbed with unfortunate events the likes at a BPO office in Pune, most of the IT companies will have to go in insurance covers."

(This article was published in the Business Line print edition dated June 6, 2005)
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