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Canada Life signed a deal with IBM under which the rates it pays the vendor for IT support will be linked to the number of policies its group insurance division processes.

What's good for Canada Life will henceforth be good for IBM. The insurer, Canada's oldest, has signed a deal with IBM under which the rates it pays the vendor for IT support will be linked to the number of policies Canada Life's group insurance division processes. Canada Life is an existing IBM customer.

According to the insurer's Tony Biegler, vice president of global IT operations, the contract that Toronto-based Canada Life has with IBM is based on a tiered pricing structure -- although Biegler would could not disclose the exact cost per policy. "Essentially, we will receive volume discounts," he says. "The more business that we send them, the cheaper it gets."

Biegler says that the carrier wanted the pay-as-you-go agreement, because it didn't want to get bogged down in technology issues. "We entered into the agreement because we didn't want to concern ourselves with the technology," such as how much storage or how many services Canada Life will need. "We pay per policy and we have certain business metrics that have to be met. If the metrics are not met, there are penalties." Because of the terms of the agreement, Biegler could not elaborate on cost per policy or penalty information.

Also, Biegler adds, IBM receives certain incentives for improving the business processes associated with processing transactions. "If IBM comes up with a better way to do business and that allows us to grow our business and handle more volume, they will receive incentives," he says.

"Unlike IT outsourcing initiatives that focus on driving down costs, Canada Life is adopting a flexible approach that allows it to adapt to market conditions," according to Doron Cohen, senior vice president and chief information officer, Canada Life.

From its recently opened Insurance Solutions Center in Toronto, IBM will provide Canada Life with a number of outsourcing services, including application development, maintenance, and infrastructure support. The agreement calls for Canada Life to pay for the services based on the volume of insurance policies it issues.

A number of major companies have taken advantage of IBM's variable-rate IT service offerings, which the company calls E-Business On Demand. Last month, insurance and financial-services company AXA signed a $1 billion deal with IBM on such a basis.

IBM says insurance companies that outsource operations to the Toronto center could save as much as 30 percent on application development costs. In a statement, Cohen said that in addition to saving money, the agreement will help Canada Life roll out online applications much faster, meaning clients will enjoy more efficient, Web-based services.

EDITOR's NOTE: This article originally appeared on, a sister property of Insurance & Technology. I&T's Greg MacSweeney also contributed to the article.

Paul McDougall is a former editor for InformationWeek. View Full Bio

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