Deal spread over 15 years to serve life and pension insurance clients of Friends Life, is largest-ever for the company.
When Friends Provident was set up in northern England as a life insurance and pensions company by Quakers to aid less fortunate families of the same religious persuasion almost 200 years ago, the idea of an Indian firm taking control of its administration would have been unimaginable.
Yet, this has come to pass, with India's largest information technology company, Tata Consultancy Services (TCS), announcing a deal worth $2.2 billion (Rs 10,870 crore) on Wednesday. TCS' British business process outsourcing subsidiary, Diligenta, will be taking over the IT and customer services functions of the UK business of Friends Life, the modern avatar of Friends Provident, for 15 years.
This is one of the largest deals TCS has won through an organic route. In 2008, as part of its acquisition of Citigroups’ captive business process outsourcing (BPO) arm, Citigroup Global Services, for $500 million, TCS had also signed a contract worth $2.5-bn, spread over close to 10 years.
| TCS-DILIGENTA UK CLIENTS | |||
| Year | Company name | Deal size | Policies |
| 2006 | Pearl Assurance Group | 847mn (Over 12 yrs) | 4mn |
| 2008 | Sun Life Financial | NA | 500,000 |
| 2010 | Phoenix Group & Old Mutual | $400mn | 1.4mn+ |
| Source: BS Research | |||
The deal comes as global uncertainty is expected to impact IT budgets in the coming year. The deal size of over $2 bn also comes at a time when analysts have said large deals are getting fewer, especially in the European markets, due to the debt crisis. The outsourcing will cost Friends Life £230 mn (Rs 1,800 crore) in one-off costs and is expected to save £60 mn a year from 2015. Some £31 mn higher than previously announced IT and customer service integration synergies, said a report in the UK media.
With this deal, Diligenta will assume administration responsibility for 3.2 million policies, for Friends Life. Diligenta will transfer close to 1,900 employees from Friends in the UK to its roll. The agreement is effective March 1, 2012.
“This deal is a significant win for TCS. It is a very clear step in the direction of increasing our revenue from non-linear initiatives. Our strong presence in the insurance segment, track record and the early investments in building products and platforms have contributed to this win. It is outcome-based pricing and we will charge per policy to the client. Friends Life joins the $100-mn client category for the company,” said N Chandrasekaran, managing director and chief executive officer of TCS and chairman of Diligenta. With Friends Life, Diligenta will serve four large life and pension insurance clients on its cloud-based platform. With this, the company would administer eight million policies, making it the second largest player in this sector in Britain.
AHEAD
“I think more than the value of the deal, the win is the realisation of the investments that TCS has done over five or six years. They have continued to be focused about what they want from the market. This should make the other players, including multinational firms, sit up and watch. This also shows how clients are trying to interact with service providers,” said Vikram Gulati, managing director, QS Advisory, a UK-based analyst company
TCS entered the UK insurance market in 2005. It has taken TCS almost four years to develop a platform for the insurance segment in UKs based on its platform offering.
Chandrasekaran said the deal had potential to grow beyond the current $2.2-bn size. “There certainly is room for the deal to go up further, but it will depend on the policies we are able to add. This deal gives us access to both open-book and closed-books. We will also have opportunity in the discretionary spend segment. More, we will now take this offering to other markets in Europe,” he added. The company is already in discussion with potential clients. While names were not divulged, Chandrasekaran did say the deals, if signed, would be around $100 mn.
Andy Briggs, chief executive at Friends Life, said: “The long-term partnership we are announcing with Diligenta gives our business the speed and flexibility to efficiently deliver the right solutions for our distributors and their clients. Wednesday's agreement enables us to maintain our industry leading service levels and offers the speed and flexibility to quickly and efficiently deliver solutions that cater to the needs of advisers and employers.” TCS started its journey in the UK insurance space in 2005, when it acquired the life and pensions operations from Pearl Group (now Phoenix Group), under a 12-year, £486-mn BPO deal.
This deal will strengthen the firm’s presence in UK insurance. The UK's contribution to revenue was 15.3 per cent at the end of the September quarter.
TCS also had bagged a 10-year, £600-mn deal from Personal Accounts Delivery Authority to administer the NEST scheme in Britian, a national pension savings one -- covering services such as employer participation, member enrollment, collection and reconciliation, cash management, accessing pension savings and administration of accounts.
TCS’ stock price at Rs 1,123 was up 1.8 per cent at the close of the day. It touched an intra-day high of 3.7 per cent at Rs 1,145 per share.
