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Mega-Deal a Bellwether?

Zurich/CSC outsourcing engagement could be worth $1.3 billion.

Seeking to transform itself into a nimble, line-of-business-oriented enterprise, Zurich Financial Services (Zurich, Switzerland; $2.12 billion in net written premium) has signed a major applications outsourcing agreement with CSC (El Segundo, Calif.) to support all of the carrier's lines of business.

Under a seven-year agreement that would reach a value of $1.3 billion if all options are exercised, CSC will provide the global insurer with a range of applications development and maintenance services in the U.S., the U.K., Switzerland and Germany. Within the course of the engagement, Zurich will transfer approximately 1,600 employees to CSC, beginning in September.

Largest of Its Kind

In terms of size, the deal is unique for the insurance sector, according to Daniel Mayo, a New York-based analyst with Datamonitor. The insurance sector has lagged behind banking in aggressive approaches to application outsourcing due to decentralized IT models,Mayo suggests, but it is set to pick up the pace. "Many large insurers are moving in this direction, and we expect to see more large deals like this over the next couple of years," he adds.

The trigger for this transaction was the decision by Zurich's leadership to make a fundamental transformation of its business model away from a more geographic/regional orientation to a line-of-business segment or matrix organization paradigm, according to Michael Paravicini, chief information technology officer, Zurich. "Clearly, IT has to align properly to support that change in an effective way; all of the new global lines of businesses need uniform processes, platforms and systems, and we need the flexibility to shift skills and resources quickly and efficiently from one place to wherever we need it on a global basis."

As the carrier transitions to a uniform platform, Paravicini plans to significantly reduce the number of systems it maintains, bringing both operational simplicity and cost savings. "The flexibility was the No. 1 priority when we started this project. The second priority was getting a standardized application landscape in place, over time, to support these lines of business, and the third priority was cost savings as the result of this ASP outsourcing," Paravicini explains. "We expect to get a very favorable blended rate from CSC, which will be significantly below our current rates."

In addition to variable costs and services as demands increase and decrease, the engagement will provide Zurich with proven transformational expertise, according to Jim Cook, president of CSC's global financial services group. "This company has, like many of our insurance clients, built itself over time through acquisitions, and one of their big challenges is to learn how to leverage themselves across the world," he says.

Paul DeFuria, CSC's lead on the account, adds that, "With our insurance knowledge and innovations, we have a lot of experience in global product management, and those characteristics are consistent with the IT strategy that's been laid out by Zurich's new management team to help transform the carrier into a more globally leveraged business."

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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