Insurers expand IT outsourcing deals

Montreal-based outsourcing services provider CGI Group Inc. has inked two 10-year deals with insurance companies in the U.K. and the U.S.

Last month, London-based Cox Insurance Holdings Plc and CGI signed an IT outsourcing contract valued at US $246 million.

Under the terms of the deal, CGI will take over management of Cox’s entire IT infrastructure, including desktops, support and maintenance of applications, as well as IT development and integration for the company’s entire business, said Gavin Chapman, senior vice-president and managing director of CGI in Europe.

As part of the agreement, more than 200 Cox IT employees will transfer to CGI, increasing the outsourcer’s workforce by about a third, according to Neil Utley, CEO of Cox.

CGI said it will provide Cox with more efficient, cost-effective services through the use of its facilities in the U.K. and offshore facilities in Canada and India. Utley said one of the key reasons for allowing some IT work to go offshore is because Canada and India are the only CGI locations, other than the U.K., where the outsourcer does development for its Realtime Transaction Manager (RTM) insurance policy administration system. “We’re already using as much (of RTM development) as we can get in the U.K.,” he said.

Utley added that the outsourcing move will allow the insurance company to accelerate work on a backlog of IT projects, save Cox US$72 million over 10 years and provide its IT employees with more career opportunities.

Lancaster, S.C.-based health and life insurer Kanawha Insurance Co. also expanded its IT outsourcing partnership with CGI to include onsite document management services.

The US$12 million business process services outsourcing contract was announced roughly six months after Kanawha inked its initial 10-year deal to outsource its infrastructure management, data centre and application maintenance and development to CGI at the end of November 2003.

Ron Groover, Kanawha’s CIO, said CGI will provide inbound and outbound mail management; paper to digital conversion; document validation and indexing; procurement; production print of all policies billing forms, reports and explanation of benefits statements; distribution services; and facility support.

As part of the agreement, CGI will take over the front-end scanning piece of the business, and will use Kanawha’s home-grown workflow system to manage the workflow of documents, Groover explained.

Kanawha expects to save 15 to 20 per cent in document management costs per year, and on the IT side, the expected savings “is in the neighbourhood of 35 per cent,” Groover said.

Tom Organ, CGI’s business development director for the Carolinas and Florida, added, “We tell our clients that on a full IT outsourcing contract, using most CGI services, we can save them 25 per cent of their total current IT spend.”

Before making outsourcing decisions, Kanawha’s Groover recommended that companies check references. Otherwise, he said, “I think the most important first step is to be open to [outsourcing]….There are a lot of companies out there that just haven’t considered it.”

Utley said customers should take caution to work out the legal details before jumping into a contract. CGI’s initial approach, he said, was to get the customer signed up and then work out some of the details before moving on. “That isn’t right way to go,” he said.

Instead, Cox negotiated the deal for about eight months and “spent a huge amount of legals to make sure that the contract [was] right,” ironing out details like what to do if the customer takes on a new business or wants some new development work done. “There are so many potential pitfalls….You have to go through that initial process and evaluate every single thing that is going to happen.”

The deal “took probably twice as long as CGI would have expected,” but what is on paper is something that everyone understands and has agreed upon, Utley said.

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