While companies such as IBM, CSC, CGI Group, Cognizant, and Wipro still land substantial deals from their life insurance customers, the trend is toward more focused deals for specific IT services, according to John Shimkus, vice president for IBM Global Services.
Shimkus should be especially aware of such a trend, as IBM in 2003 inked three deals worth more than $500m a piece, including a $1bn contract with top global insurer AXA.
With cost pressures mounting and IT departments being cut throughout the industry, more life insurers are outsourcing between 50% and 75% of insurers now outsource some component of their IT operations, Shimkus said.
Nor is it uncommon for a global insurer to simultaneously contract with some 20 IT services and software providers, explained Mike Nemeth, vice president and insurance practice head for US-based offshore vendor Cognizant.
Whereas a full-scope deal would generally include complete infrastructure management covering network, help desk, mid-range, and mainframe services as well as applications support, more focused deals may cover specific IT duties, such as Web hosting or specific application transformation.
The biggest IT problem facing life insurers is the maintenance, integration and overhaul of their old legacy systems, sometimes dating back 20 or 30 years, that are both unreliable and redundant, Shimkus said.
Oftentimes an insurer will have 20 or 30 separate platforms for its insurance policies, either as a result of earlier merger and acquisition activity or new product creation, he said. Once insurers have taken care of these older core systems, they can shift their IT dollars to development work.
Nemeth predicted that offshore vendors would receive the bulk of this system maintenance and upgrade work in the future due to their low-cost delivery models. He said 22 of the top 25 US insurers offshore some component of their IT services (one insurer even has its own captive offshore operation), and 16 of those outsource to multiple vendors.
Outsourcing deals have begun to focus more on insurers’ core business systems, moving away from generic financial systems and toward systems for policy management, new business, underwriting, and other areas further up the value chain, according to Nemith.
This movement to core functions is reflected in the large life insurance BPO market, which at first involved less strategic areas such as internal HR and finance and accounting but has moved toward claims and policy administration, Shimkus added.
