As it pertains to information technology strategies, life insurers are regarded by many industry experts as trailing their counterparts in the property/casualty and even health insurance sector.But when Waterloo, Ont.-based Manulife Financial of Canada in September announced plans to partner with CGI Group on a $100 million IT application outsourcing initiative, it presented further evidence that life insurance companies might be collectively poised to make a bolder commitment to IT strategy.
"Life insurers have been laggards with development and execution of IT strategies, with many of them falling into what I call the 'C' category of IT best practices," states Susan Cournoyer, senior research analyst for Stamford, Conn.-based global research and consulting firm Gartner Inc.
"More recently, life companies have been out pounding the pavement looking for application outsourcing opportunities. As a growing number show more leading-edge behavior with respects to IT, they are graduating to the 'B' category of IT development," Cournoyer explains.
Based on the magnitude of its pact with CGI, Manulife might be in line for an "A" category designation as it relates to IT best practices, says Cournoyer.
In an ambitious six-year initiative, Manulife and Montreal, Quebec-based CGI will create an IT development center in Halifax, Nova Scotia, whereby CGI will provide Manulife with systems development, maintenance and integration services.
As part of the contract, 300 Manulife technology professionals currently based in Halifax will become CGI employees and be "leased back" to the provider.
These 300 IT specialists are employees of Halifax-based Maritime Life Assurance Co., which is the Canadian subsidiary of John Hancock Financial Services Inc. Maritime Life became part of Manulife when John Hancock and Manulife merged earlier this year.
Expansion mode
Over the years, CGI has provided an array of services to insurance companies by offering IT services through what it refers to as "home shore, near shore and offshore centers of excellence."
As part of most partnerships with insurers, CGI, which employs approximately 25,000 people, inherits an insurer's IT staff and then often proceeds to increase internal staffing.
In 2001, for instance, CGI entered into a partnership with Novato, Calif.-based Fireman's Fund Insurance Co.
Under the terms of that deal, CGI provides IT infrastructure and maintenance outsourcing services to Fireman's Fund and other insurance clients.
Assuming control of Fireman's Fund's IT professionals, CGI over the past three years added resources at its Phoenix-based data center where it not only supported Fireman's Fund IT efforts but added insurance clientele along the way.
Manulife, which offers clients a diverse range of financial protection products and wealth management services through a network of employees, agents and distribution partners, explored several options in addition to CGI. The company was sold on CGI's ability to take IT professionals and leverage their skill sets to a higher level.
"This was really an elegant solution, and a triple win: It benefits us, CGI and the IT specialists," comments Bruce Gordon, senior executive vice president and general manager of Manulife Financial's Canadian operations. The IT specialists will be able to better maximize their skills under the aegis of CGI, while Manulife will be able to extricate itself from the overhead costs associated with internal IT application development.
"We looked at other options, but the CGI model was far and away the best we explored," adds Gordon. "If we would have kept this project in-house, we would have faced a systems integration project. Then, once that project was complete, over time we projected we would have had to reduce head count from 300 to 150. With CGI's plan, they absorbed all 300 IT specialists, and they apparently plan to increase that number over time."
Gordon says Manulife still plans to operate an internal IT division, with the effort predominantly overseeing development of intranet and Web self-service platforms.
The IT resources the company inherited following the Hancock merger had already been pared down significantly as Hancock had also outsourcing IT operations over the years.
Unique approach
In essence, insurance companies have three viable options at their disposal for IT outsourcing, according to Gartner's Cournoyer.
One option is to select a "top-tier" consulting firm, which can be problematic for insurers from a cost standpoint, she says. A second option is consideration of an India-based or other offshore vendor, which is still regarded as an "unproven model." The third option is choosing the expertise of a company such as CGI.
"Manulife has proved to be best in class as what they do-which is provide financial services-and they wanted to get a better return," says Paul Raymond, senior vice president, New England region, for CGI.
As it currently stands, Manulife is the sole client to use the resources at the Halifax IT center, but over time CGI hopes to acquire additional life insurance partners. Raymond says many will be attracted to the low-cost operation Halifax provides.
"We are selling an expertise that people will be willing to pay extra for. It's a no-brainer," he says. "Insurers have adopted the approach of considering the low-risk advantages of our model instead of spending millions of dollars on a system replacement."
Gartner's Cournoyer agrees, adding that "at a time when layoffs of IT specialists is becoming more prevalent, adding and even expanding staff is an unusual arrangement. It's a very flexible arrangement where CGI is able to take on these positions where a number of their competitors might have balked at that arrangement. And, it helps too that they have an established expertise serving the insurance industry."
In assessing the potential to add scale to the Halifax operation, CGI hopes to recruit other life insurers in North America to buy into the concept. As it generates new clients, CGI expects to grow employment at the center to 500 technology positions over a two-year period.
