TCS’ deal with Friends Life may be at risk with Aviva buyout

MUMBAI: Tata Consultancy Services’ deal with Friends Life, worth more than $2 billion, may be in jeopardy after the UK insurer agreed to a potential 5.6 billion pound buyout by insurance giant Aviva. Friends Life outsources most of its 100 billion pounds of assets under management. TCS’ Diligenta platform services about 3.2 million of policies for the insurer’s closed-book and corporate-benefits programme through a 15-year deal the Indian company won in 2011. TCS also announced this August that it had won an additional “multi-year, multi-million-pound” contract to services the insurer’s international open-book pensions and life policies.

“The transaction is expected to lead to a substantial increase in profits and assets under management at Aviva Investors through the addition, over time, of Friends Life’s UK assets under management which are currently principally outsourced,” Aviva said in a news release on Friday, indicating that it would look to bring those policies under its umbrella.

Aviva itself has a $1 billion contract with USlisted BPO company WNS and that includes policy administration. WNS won that contract in 2008 and acquired some of Aviva’s back-office operations in India as part of the deal. The contract, which cemented Aviva’s position as WNS’ largest customer, was renewed this year and will run through 2022. TCS declined to answer questions saying it doesn’t comment on client-specific information while WNS said it has no comments to make. Industry experts said the Aviva-Friends Life deal would likely result in the rethinking of how outsourcing around policy administration is done.

“Clearly, rethinking the outsourcing strategy is on the table. This combined with new options in automation and an increasing desire to have things onshore could herald changes,” said Peter Bendor-Samuel, founder and CEO of outsourcing advisory Everest Group. “The risk that the Diligenta deal is rethought has increased.”

At the very least, there will be a consolidation of deals affecting both players. “Given Aviva is buying FL, the most likely scenario in order to cut costs is to rationalise and consolidate the back office even further,” said Leslie Willcocks, professor of work, technology and globalisation, at the London School of Economics. But the size of deals for both TCS and WNS and the fact that they are both large strategic providers for the two insurers would complicate any transition.

“This is quite a rare occurrence in insurance, so any consolidation may get delayed for some time so client can ascertain which provider contract is cheaper to transition out,” said Phil Fersht, chief executive and head of research at HfS Research. “Termination is awkward and often costly. It’s difficult to tell which one would win out long term.” He added though that there was a distinct possibility that the Diligenta contract was at risk.