TCS’s life and pensions (L&P) BPO division Diligenta has hit the jackpot, securing its largest contract to date, a £1.37bn deal with UK-based pensions, investments and insurance provider Friends Life (FL). Diligenta will take on some 1,900 FL employees across a number of locations in the UK, and administer 3.2m policies including most of FL's closed book protection business and a significant part of its corporate benefits business. It brings Diligenta's total number of policies under administration to c8m, and confirms management's bullishness when we met them earlier this year (see Diligenta optimistic on L&P turnaround).
In terms of size, this deal really is a ‘biggie’. By our estimations this is the largest new name BPO contract in the UK for a number of years, dwarfing the previous big new name win, worth c£650m, between WNS and AVIVA in 2008 (see here). It is certainly the largest to date in the UK by an India-based provider, and over twice the size of the previous biggest deal, again by TCS, the £600m deal to run the National Employee Savings Trust (NEST) (see here).
What the deal really shows to us is the potential of the platform-based business process services (BPS) model that we believe is driving the market today (see Business Process Services: UK Market Trends & Forecasts, 2011). As with its other L&P customers, Diligenta will migrate FL's 3.2m policies over to its BaNCS insurance platform. This model is very much aligned with our thinking of platform-based BPS, in which the platform drives the process transformation and automation - in this case ‘straight-through-processing’ – through the use of technology and best practice methodologies. The administration in theory then becomes more streamlined and efficient.
The UK BPO market is very active, in both the public sector and private sector, and life and pensions in particular is a hot area. Nonetheless we don’t think this is a signal that we’re returning to the days of the BPO mega-deal since all the fundamentals behind the 'lift and shift BPO' model are now on rocky ground (see Firstsource operating margin slumps in Q2).
Suppliers like Diligenta with the right platform-based BPS offerings are going to do well. It leaves question marks however over how those without such offerings are going to compete in this new world. I will be speaking with Diligenta management to explore this important deal and its implications for the UK L&P market in more detail.