Insurance companies historically have been hesitant to outsource core business processes, fearful that relying on vendors to perform processing and support services is a risky proposition. That perception may change, now that one of biggest names in insurance IT is delving into BPO processing and support services for life policies and annuities.IBM Corp. announced in November that it is purchasing Liberty Insurance Services Corp. (LIS), the Greenville, S.C.-based processing subsidiary of RBC Insurance. The new IBM subsidiary will assume LIS' life and annuity processing services for more than a dozen life carriers and will provide contact center management, policy administration and claims processing.
In addition, IBM will assume these responsibilities, along with payment receipt and reconciliation, for RBC Insurance's U.S. operations under a long-term agreement. It is anticipated that 700 LIS employees will remain with the new subsidiary. RBC Insurance has more than 200 employees at its Greenville, S.C., location, along with a field force of approximately 400 captive agents in Kansas City, Mo.
The deal follows a series of steps that Armonk, N.Y.-based IBM has made in recent years to expand its insurance industry presence.
In 2000, IBM signed a 10-year, $1 billion technology outsourcing contract with Mitsui Mutual Life Insurance Co., one of the largest life insurers in Japan. The agreement created a joint venture staffed by employees from Mitsui and IBM Japan that would take over management and maintenance of the carrier's existing host systems, develop and maintain new systems, and manage the network linking Mitsui's servers and PCs at 780 offices throughout Japan.
In 2002, IBM signed a 10-year, $563 million IT services contract with Toronto-based Manulife Financial, which included Manulife's agreement to participate in the creation of the IBM Insurance Solutions Center, a research and development facility focusing on developing "next-generation technologies for the insurance industry."
In 2003, IBM signed a six-year, $1 billion contract with AXA Group, Paris, to integrate the financial service giant's server, mainframe and storage system with IBM's On Demand platform. And, last April, IBM acquired Daksh eServices, an India-based provider of customer relationship management and financial management services with service centers in Asia, India and the Philippines.
The RBC acquisition represents a progression of these and other insurance industry initiatives, says Michael Adler, IBM'S global insurance consulting leader.
"We looked at the insurance market and what we're strong at-we have a good consulting base with life and property/casualty carriers and a lot of base IT infrastructure with large life insurers-and we determined, with input from our insurance customers, that the processing space was a good opportunity because of the limited options in the market," Adler says.
"An acquisition was the most appropriate option, one that would give us scale and capabilities to handle both closed and open books of business."
Industry experts say life insurers often look to offload IT and other support services for closed books, noting that carriers are reluctant to invest in technologies to support mature life insurance lines. Adler says IBM also sees an opportunity to provide technology and services for life products that are in the early stages of their lifecycles.
"When we take on a book of business, we will perform some level of transformation, which would the conversion of an existing application to newer technologies, or new procedures, to drive out costs," he explains. "We can provide the scale and infrastructure for call center, hosting, application support and policy processing that a company may not have access to."
IBM may have a trump card that other providers of life and annuity processing and support services lack, says Cynthia Saccocia, a senior insurance analyst with TowerGroup, Needham, Mass. "One advantage that IBM has is the consulting arm it acquired from PricewaterhouseCoopers," she says. "They have the experience of working with insurance companies to ensure that the services promised are in line with insurers objectives.
"Consulting services are important to making outsourcing deals a reality and I think this is a real differentiator for IBM" in a market that is served by such companies as CSC, El Segundo, Calif., CGI, Montreal, Quebec, and Deloitte, New York.
"I'm not surprised that IBM chose to go after the life and annuity market first, given the company's presence in the asset management field, and I expect that IBM will jump into the property/casualty arena," she adds. "The question is whether it will be personal or commercial and what areas that P&C insurers are interested in outsourcing."
IBM's Adler confirms that Big Blue is indeed eyeing the property/casualty business. "We're now in a position to look at the P&C space and determine where the sweet spot is," he says. "We took a broad approach in the life sector, but with P&C it might be different. We might focus on claims or a segment of claims, or perhaps billing. We haven't made a clear, definitive jump yet."
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