The landmark outsourcing deal that Zurich Financial Services signed in July begs this question: Is outsourcing back in vogue, or is Zurich's situation unique?Insurance executives surely will scrutinize the results and ramifications of Zurich's seven-year, $1.3 billion application maintenance and development deal with CSC. For starters, the arrangement is expected to save Zurich $300 million over the seven-year period. But more importantly, executives will be keenly interested in how Zurich is able to execute its business strategy, now that responsibility for new application development is out of the hands of Zurich's IT staff.
On the surface, Zurich's decision to offload application development and maintenance for all business processes, including new business, underwriting, claims and customer service, appears to be a huge gamble, considering that the IT work will be conducted around the world, from India to South Africa to Eastern Europe. Zurich's goal is to standardize IT operations, manage IT resources centrally and move away from its geographical business and IT orientation.
However, Zurich executives are confident that they have the right mix of internal managers and outside expertise from CSC to make this deal succeed where others have failed. "Clearly, a strong management team is a prerequisite for a large ASP deal like this one," says Michael Paravicini, Zurich Financial's CIO. "We want to retain responsibility and control for managing our application strategy. We will be using CSC's expertise to develop and maintain applications faster and more efficiently."
Zurich's deal wasn't the only insurance outsourcing arrangement that made headlines in July: CSC also signed a seven-year, $600 million agreement with Aon Corp. to operate and manage the carrier's U.S.-based telecommunications and data networks and related IT services. Together, the two deals represent a major commitment by two leading insurance companies to hand the keys of their IT kingdoms over to a third-party provider.
Don't be surprised if other insurers jump on the outsourcing bandwagon. One thing I've learned about the insurance industry is this: Carriers tend emulate successful strategies and avoid those that fail. If Zurich and Aon gain significant benefits from their outsourcing engagements, beyond potential cost savings, then outsourcing providers are going to reap a bonanza of new business.
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