The world's largest insurance firm, American International Group (AIG), is on the prowl for more business as information technology outsourcing expands in China. It is looking to sell for more professional liability insurance to IT service providers and software developers. But AIG only expects demand to grow if more small to medium-sized IT outsourcing enterprises sign up for such policies - a development that would also make them more competitive against bigger rivals. 'Although we're the biggest player in this insurance market segment right now, we are still working to educate the mainland market and increase awareness in the local IT industry,' said Ian Pollard, AIG regional professional liability manager for Greater China and Southeast Asia operations. 'We estimate the size of the worldwide IT professional liability market to be over US$100 million.' Professional liability insurance provides cover to professionals for certain types of claims against them by third parties under civil law. Mr Pollard said IT consultants, software developers, website designers, electronic data processors, management consultants, IT training companies, IT outsourcing specialists and telecoms firms were potentially exposed to professional liability claims. These firms advise corporations on the purchase of IT equipment or software. Insurers see some of that advice leading to the acquisition of products with performance and safety problems. 'In the United States and other western countries, most multinational corporations have been aware of this liability issue as far back as 10 years ago,' Mr Pollard said. 'However, IT service providers in China and other countries in Asia are largely unfamiliar with their underlying liability risk.' Research firm Gartner estimates China's market for IT services is growing rapidly - at a compound annual rate of 14.1 per cent through to 2009 - because of World Trade Organisation-related market reforms which have stimulated heavy investment in IT by local companies striving to become more competitive. Sujay Chohan, vice-president and research director at Gartner, said: 'There are more than 10,000 companies already offering IT services in China.' Gartner said the future of outsourcing deals has increasingly favoured smaller contracts with specific business objectives and moved away from the full service, 10-year, multibillion-dollar projects that have prevailed for many years. That trend puts smaller IT service providers and software developers at an advantage, including many specialist firms established on the mainland. John Cestar, co-chief executive at the San Francisco-based outsourcing firm Freeborders, which also has operations in Shenzhen, said: 'China is clearly the emerging leader in software development outsourcing.' He noted that China already provided a large supply of low-cost, high-quality software engineers, who number about 400,000. Up to 150,000 highly motivated and skilled engineers enter the workforce each year. More multinational companies, especially from the US financial services industry, were starting to outsource part of their application software development to IT outsourcing companies in the mainland to diversify and offset rising expenditure in India, he said. But Mr Pollard said no matter how much care mainland IT companies and professionals took, or how good their advice or the quality of their service, 'they may still be vulnerable to claims alleging breach of duty'. 'They may face claims not only in connection with the quality of advice they deliver, but also for damage caused by the failure of the products they supply. 'We have had claims in Hong Kong and Singapore, some running in the millions of US dollars,' he said. That is why AIG, through its China operations, has moved to accelerate its education efforts in the key markets of Shanghai, Guangzhou and Shenzhen, where many of the mainland's IT service providers are based. At present, the 'gestation cycle' - the period from start of discussions with the insurer to the signing of a policy - for professional IT liability coverage takes about two years. Still, Mr Pollard said there had been enough inquiries with AIG on the mainland this year about IT liability coverage to raise hopes that its gestation cycle would eventually be shorter. ProfessionGuard, AIG's IT consultant liability insurance, covers not only errors and omissions, but also intellectual property rights infringement, compensation for court appearance and dishonesty of employees.