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Clarica/Sun Life Distribution Focus

Canada's largest insurance company expects to shift to a captive agent model, and is taking the plunge into IT outsourcing, as well.

The Canadian insurance industry moved further down the consolidation path with the Canadian government's approval in late May of Sun Life Financial's (Toronto) acquisition of Clarica Life Insurance Co., which together form the country's largest insurance entity. The new company will have roughly seven million Canadian customers and combined assets of CD$409 billion. But rather than this being another spectacle of a giant insurer gobbling up a smaller competitor, a truer picture within the Canadian market may be of a smaller player helping to resuscitate a struggling hulk.

Some even see the deal as a "reverse takeover," with the technologically sophisticated and effective distributor Clarica bolstering Sun Life's disappointing individual sales results. Many plum Canadian management roles are being occupied by Clarica executives. Most notably, Bob Astley, Clarica's president and CEO, is now president of Sun Life's Canadian operations.

Distribution Strategy Shift

"Even though the banner will be Sun Life going forward, Clarica individual business operations essentially took over the Sun Life individual operations," says Byren Innes, a partner at NewLink, a Toronto-based management consulting firm. "As such, they had to try and move that distribution force over to the Clarica model," based predominantly on a captive agency force, as opposed to Sun's largely third-party distribution model.

From an IT point of view, Clarica's systems also are likely to win out, according to an industry consultant who specializes in the Canadian insurance market. "Sun has a few systems for health and group pensions that will likely be survivors," he says. "Both Sun and Clarica have done a lot of interesting things in the Web access area, but Clarica, in particular, has worked hard at developing fairly well-integrated Web applications to support its captive agency force."

While analysts tend to focus on the differences between the two organizations, John Wright, Sun Life's executive vice president and CIO, corporate systems, emphasizes the similarities. From an IT perspective, the companies share "a very high degree of compatibility from a technical infrastructure standpoint," he says. "We're even going in the same strategic directions."

The chief challenge, according to Wright, is simply the volume of work to be done in a limited time frame. The two companies began studying the integration problems as soon as they got shareholder approval to merge. "We've been doing detailed work for about six months," Wright says. "By January 1, 2004, we expect to be fully integrated."

On the technical infrastructure side, the firm plans a bold move in the interest of "risk mitigation," according to Wright. "We looked at the merger and asked, 'Why would we put these two worlds together without looking at opportunities to outsource some of the commodity functions?'"—such as mainframe, data center functions, applications, e-mail hosting and network security. In fact, at press time Sun had penned a letter of intent to enter into a seven-year, CD$250 million outsourcing deal with IBM.

Tough Choices

Application questions resulted in hard choices between the two firms' systems, Wright acknowledges. "You have to set aside emotion to make that decision from a purely business perspective," he says. "Web development technology differed from one organization to the other. We made the decision to go where we had the more fully functional systems."

Some merger-related decisions resulted in agents being forced to make hard choices about their future association with the amalgamated firm, according to NewLink's Innes.

But IT workers should have a happier reaction to the infrastructure shakeup if all goes to plan, according to Wright, as the outsourcing deal calls for employment opportunities within IBM for the approximately 120 Sun Life IT workers within areas of operations affected by the deal.

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio

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