IBM Enters BPO Market With LIS Acquisition

IBM Enters BPO Market With LIS Acquisition

By Wendy Toth

Forging a path into the business process management services sector of the insurance industry, IBM has announced it will acquire Liberty Insurance Services (Greenville, S.C.), a U.S. subsidiary of Canada-based RBC Insurance. The new IBM organization will carry out life and annuity policy processing for over a dozen life insurance companies, offering services including contact center management, policy administration and claims processing.

As part of the agreement, these services, along with payment receipt and reconciliation, will be provided by IBM to the U.S. operations of RBC Insurance (Greenville, S.C.), LIS' current owner. It is expected that approximately 700 LIS employees will remain working for the new organization. Financial terms of the deal, expected to close by Dec. 31, have not yet been disclosed.

The deal raises a question as to why a company that already possesses a sizeable presence in the technology realm of the industry is shifting its weight. "IBM has a tremendous presence in the insurance industry already, and is recognizing the potential of BPO," says Craig Weber, senior analyst, Celent Communications (Boston). Weber further explains that this move transitions IBM from their traditional hardware and enterprise software capabilities into services through what he calls a "just add water" approach into BPO.

Katherine Hegmann, general manager, IBM Global Business Transformation Outsourcing, said in a statement, "Life insurance processing and managed operations is expected to represent a $2 billion market globally by 2005, and this acquisition, combined with IBM's business consulting and technology skills, significantly expands our business transformation capabilities for insurance providers worldwide."

The new subsidiary will give IBM the capability to vie for life insurance and annuity processing and administration contracts both in North America and globally, IBM claims in a statement.

"What is important for IBM is that this agreement gives them the opportunity to build what can be an outsourcing facility similar to some competitors, providing the operational support necessary for insurers," comments Cynthia Saccocia, senior analyst, Tower Group (Needham, Mass.).

For insurers looking to outsource, competition means choices, and this acquisition will likely provide more market opportunities to respond to, according to Saccocia. "At this point the deal introduces another player for insurers to evaluate," says Saccocia. "Right now we've got CSC (El Segundo, Calif.), CGI (Montreal, Quebec), Accenture (New York), and Deloitte (New York) all playing a role, and it is an interesting twist that we have IBM more firmly rooted by a center that will be able to handle BPO while bringing software capabilities and an understanding of core operations to the market."