The client's main concern, he said, was not owned property, but the cost of moving the call center to another location in the event of a war, government intervention, license cancellation or other events that could impact an outsourcing contract with a third party.

One possible scenario for the company, he noted, might be war breaking out between Pakistan and India, which could destabilize the country and hinder trade between India and the United States.

Another could be a regulatory change. For example, the government might impose a higher wage rate targeting business process outsourcing.

“Often the biggest companies of industrialized countries are taking advantage of low labor costs in a place like India or the Philippines,” he said. “Suppose [the] government wants to exert a tax to take some of the profits away. They might impose a new tariff for these transactions or increase the wage rates on minimum wages for employees working at these firms.

“This could take away the profits altogether and the reason for setting up the outsourcing arrangement in the first place,” Mr. Minor said.

Strikes, riots or terrorist actions could also negatively impact outsourced operations, he added.

Aon Trade Credit's policy would pay for any relocation and extra costs and expenses incurred at a new location for up to a year.

“It's a pretty significant product,” he said.

He noted that a recent Deloitte Research survey indicated that the world's 100 largest financial service companies expect to transfer an estimated $356 billion of their operations offshore within the next five years.

Mr. Minor said that policy limits are decided on a per-client basis, but that the total capacity is $200-$300 million.

“For most companies, that is probably adequate to cover their extra costs and expenses,” he said. “Keep in mind, it's not an investment we're insuring.” Instead, he said, “We're just talking about the extra costs and expenses of relocating a particular back-office function. So $100-$200 million for most companies is probably more than adequate.”

Policy exclusions are standard, he said. They include currency fluctuation, fraud, radioactive contamination and the “five great power” exclusionrequired by reinsurers in the private market. This means that any losses incurred by war erupting between the “five great powers”the United States, France, Russia, China and Germany–would not be covered.

Industries across the board are looking at offshore outsourcing arrangements, he said, particularly technology and financial institutions and the airline industry. “Fortune 1000 companies are outsourcing anything from IT to call centers,” he added. “One client was outsourcing its accounting department to a third party in India,” he said.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, July 21, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.