Business Process Outsourcing Firms Face New Risks, Sharper Contract Battles

A new research paper from global insurance broker Lockton and global insurance carrier AIG highlights new risks and identifies best practices and solutions for business process outsourcing (BPO) and information technology outsourcing companies.

The report notes the phenomenal growth of BPO and IT outsourcing companies and their shift from data entry and document management to complex financial processing and customer service functions. Authors Emily Freeman of Lockton and Robert Ballerini of AIG write that the key growing risks are professional liability along with security and privacy liability.

The report is entitled, “Claim Trends and Best Practices for Reducing Professional Liability and Data Protection Risks.” Freeman is Executive Director of Lockton’s Technology and Intangible Risks Practice based in London. Ballerini is U.S. Head of Financial Lines, Specialty Claims for AIG in New York.

“The shift of the legal battlefield to the contractual agreements between the parties has had a major impact on what traditional technology or miscellaneous professional liability exposures need to be insured for today’s BPO/ITO company,” Freeman and Ballerini write.

“The contractual battle between allocation of risk between service providers and clients has sharpened. Essentially, much more risk is being driven to the service provider,” putting BPO and IT outsourcing companies at greater risk.

“This fact is apparent in professional liability claims history as well as our broker experience in reviewing draft contracts and RFPs. This is particularly true when the client is in a ‘high-compliance’ industry, such as financial services, healthcare, energy or telecommunications. It is also true when the client is a governmental entity (under considerable budget pressure and subject to political/public fallout for failed IT projects),” write Freeman and Ballerini.

Lockton and AIG offer practical insights on how BPO and IT outsourcing companies can deal with these risks, reduce their exposure, and deliver on expectations to both their shareholders and clients. The report includes a six-point plan for reducing professional liability claims for BPO and IT outsourcing firms along with 10 recommendations for improving their IT security.