What is offshore outsourcing?

Offshore outsourcing is the shifting of activities such as IT, call centres and repetitive business operations to lower cost locations overseas.

Who is taking advantage of it?

Industry sectors taking advantage of offsourcing range from large financial companies such as Lehman Brothers, to technology services companies such as General Electric. Other sectors include banking, airlines, pharmaceuticals, healthcare, strategic consulting and telecommunications.

Why offsource?

Companies are choosing to offsource certain activities mainly because large savings can be made as a result of lower costs. These cost savings are becoming critical to maintaining competitive advantage in today's economic climate. Offsourcing activities additionally enable companies to focus on core business objectives, while also enhancing their bottom line.

Offsourcing locations:

Currently India is the most favoured offsourcing location due to its:

• Lower operational costs
• Large numbers of English speakers
• Substantial labour pool
• High levels of quality and productivity

Other offsourcing locations include the Philippines, Russia, Mexico, Malaysia, Canada, Israel, China, Eastern Europe and Ireland.

Why is insurance important?

Offsourcing activities carry varying degrees of risk. One of the major associated risks is political force majeure, which could occur when countries become unstable in times of war, during periods of escalated terrorism, when sanctions are imposed or licenses cancelled. The political events in a force majeure clause release parties from their contractual obligations, which may result in the necessary re-location of the outsourced operations.

The information below shows the most common types of outsourcing and the key exposures relating to them:

• Method: investment/ownership (in the overseas venture)
  Exposures: assets, relocation costs, business disruption
• Method: "pure" outsource (no ownership)
  Exposures: contractual, relocation, contingency, business disruption, "hidden" assets
• Method: joint venture
  Exposures: mixture of above

Insurance available:

Miller has developed a product with Lloyd's underwriters, which offers protection against resulting abandonment, additional operating costs and expenses and business disruption. This cover should be considered in conjunction with existing contingency and/or Exit plans. These will usually address relocation and operational costs at the alternative location(s).

Key underwriting information required:

• Project overview
• Details of all project participants and their roles
• Location addresses (including Zip Codes)
• Project agreements
• Business continuity plan
• Relocation plan and costings
• Details of service providers
• Legal opinion providing confirmation of legality of contracts