TCS’s BPO Deal with Friends Life = The $2 Billion+ Gorilla in the Insurance Industry | Sherpas in Blue Shirts

On November 9, 2011, TCS announced that its U.K. subsidiary, Diligenta, had inked with U.K.-based Friends Life a $2.2 billion outsourcing agreement, spread over 15 years, for administration of 3.2 million life and pensions insurance policies, as well as its closed books line of business and much of its corporate benefits business.

While the size of the contract itself is indeed eye popping – although that the deal came to fruition isn’t surprising to industry insiders given Friends Life’s heritage – several other factors also make it significant.

  • This is the largest deal ever in the insurance BPO segment, one of the largest in overall BPO, and the second largest ever awarded to TCS, surpassed only by its 2008 $2.5 billion acquisition of Citibank’s India captive (and its ongoing service agreement with the bank, which was part of the deal)
  • This engagement also makes TCS the second largest provider in the insurance BPO space, effectively leap-frogging it over EXL, WNS, Genpact, and Accenture. And while the deal will significantly boost TCS’s and Diligenta’s revenues, in the short term, it will likely place a drag on their bottom line
  • The deal demonstrates that Indian providers are moving away from their previous “start small and grow the business” strategy and are now pursuing and winning mega deals – and there aren’t many such deals to be found in any provider’s new business portfolio these days
  • The deal sends a clear signal that outsourcing industry-specific functions is becoming increasingly attractive to buy-side organizations
  • The deal is another example of the convergence of IT and BPO, as TCS/Diligenta will be providing not only BPO services, but also IT and infrastructure services, and moving a significant portion of Friends Life’s policies to its BaNCS technology platform

Of course, the deal also raises questions. Why did this deal come to be signed? What does this mean for the United Kingdom as a market for insurance BPO? How will this deal impact TCS and Diligenta? And finally, given the backdrop of this deal, what are the key developments to watch out for in the insurance BPO industry?

We will continue to update you on these and other issues and developments in the insurance BPO market as they happen.

For more details on the TCS/Friends Life deal, read Everest Group’s Breaking Viewpoint The Two Billion Dollar (and some more) Giant: Implications of TCS’s Insurance BPO deal with Friends Life.

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