RealTime IT News

Big Blue's Insurance Buy Fits New Policy

Jumping into a new area with both feet, IBM will acquire Liberty Insurance Services (LIS) to become a significant player in life insurance and annuity processing and administration, the companies announced today.

The exact price paid to Liberty's parent, RBC Insurance of Canada, was not disclosed. However, a source close to the transaction classified it as a "multi-million dollar deal."

IBM and RBC Insurance also signed a long-term agreement for IBM to handle back-end tasks for RBC's U.S. operations, including contact center management, policy administration, claims management and payment receipt and reconciliation.

Most of the 700 LIS employees are expected to become part of a new IBM subsidiary, which will handle administrative and IT jobs for more than a dozen insurers.

Details about the unit's location and organizational structure will be hammered out during the next 90 days, Stacy Simpson, an IBM spokeswoman, told internetnews.com.

IBM said the industry is seeking to cut costs and improve efficiency by outsourcing and that life insurance processing is expected to be a $2 billion market by 2005.

"This is another example of the higher-value work that clients are increasingly turning to IBM to do," Simpson said. "It's a whole new area of spending. [The spending] used to be on the inside, but now companies are turning to outside vendors."

Today's purchase is part of IBM's larger Business Performance Transformation Services (BPTS) strategy, being executed through its consulting group. The philosophy combines deep technical and industry-specific abilities.

During the company's spring meeting with Wall Street analysts, IBM Chairman Sam Palmisano said the BPTS market opportunity is about $500 billion over and above the traditional $1.2 trillion that businesses around the globe spend on IT products and services each year.

Big Blue's $3.5 billion acquisition of PwC Consulting two years ago laid the foundation for IBM to offer these types of services.

For RBC, today's deal helps it shed non-core functions. The deal will not impact RBC Insurance's own U.S. operations, which are separate from Liberty's, in South Carolina and Missouri.