13 February 2003 Troubled UK insurance group Royal &Sun Alliance has unveiled a ten year, £300 million business process outsourcing deal with server and services supplier Unisys. The move is part of a plan by the company to reduce the cost of serving its 2.4 million existing life and pension policy holders.

About 1,700 Royal &Sun Alliance staff will transfer to Unisys’ insurance services subsidiary as part of the company’s plans to slash its 50,000 workforce to 38,000 by 2004.

Organisations are increasingly moving to cut their systems and administration costs via business process outsourcing, such as combined IT infrastructure and payroll processing contracts, largely as a result of the squeeze in IT budgets.

The rationale behind the deal is that Royal &Sun Alliance needs to reduce its IT maintenance costs for each existing policy holder after it announced the closure of its UK Life insurance division to new business in August 2002, said a company spokesperson.

As the number of existing policy holders decreases, the company will be able to reduce its maintenance costs down accordingly. This flexibility to scale operations up or down — as opposed to fixed costs — is a key driver behind the increased move to outsourcing as companies try to shield themselves from peaks and troughs in demand.

The Unisys Insurance Services Limited (UISL) subsidiary will provide customer services, as well as enhancing Royal &Sun Alliance business applications, network resilience and migrating legacy computer systems to “open, strategic platforms”, said USIL managing director Peter Thomas.

The deal highlights Unisys’ continuing focus on services away from its hardware business. In the three months ending December 2002, Unisys reported services revenues up by 4%, led by double-digit growth in outsourcing and systems integration.

In the quarter, the company clinched $800 million (€742.5m) worth of new services contracts, with some particularly impressive business process outsourcing wins in the financial services sector.