Sage Life Ltd has signed an innovative 10-year outsourcing agreement with EDS that breaks new ground in the way insurance companies manage their IT resource.
The deal commits EDS to helping Sage become one of the top 25% of the world`s most efficient insurance companies. In what amounts to a true business partnership, EDS will take over and upgrade Sage`s IT function. It will install new systems, and implement global best-practices and processes designed to enhance Sage`s overall business performance. EDS will share directly in the risk and reward of the venture, its entire fee being linked to Sage`s sales revenue.
"This is a radical advance for outsourcing," says Janssen Davies, newly appointed managing director of Sage Life. "It will enable us to leapfrog the technology hurdle and gain greater business value from our IT resource in several critical areas - cost containment, revenue generation, service levels and distribution capabilities."
The norm in the insurance industry is for IT investment to remain at a constant ratio to premium income. EDS has undertaken not only to achieve a sustained reduction in Sage`s IT investment ratio, but also to raise the company to within the top 25% of the world`s most efficient insurance companies.
"Worldwide, EDS has demonstrated that it has the insight and expertise to add significant value," says Davies. "The fact that it is prepared to link its fee directly to our financial performance shows it also has the commitment to be a true business partner to Sage."
EDS` fee will be calculated solely as a percentage of Sage`s revenue from insurance sales, with the percentage declining every year. Based on projections, EDS Africa MD James Fitzgerald estimates that EDS could earn up to R400 million over the duration of the contract.
The terms of the agreement ensure that both parties constantly explore innovative ways of improving Sage`s business performance. A permanent steering committee, on which both are represented, will set IT policies and strategies with the twin objectives of raising efficiency and growing the business.
The first investment approved by the committee is the identification of the most suitable all-embracing life insurance package available worldwide, and its implementation within the first four years of the contract term. Further investments will be decided on an on-going basis.
"Sage is a medium-sized player in the South African insurance market," says EDS Africa MD James Fitzgerald, "but it is growing aggressively thanks to its talented and innovative management. This is reflected in the consistently positive comments it is attracting from the investment community. Our agreement sets ambitious targets for Sage, but the fact that we`re happy to live with a declining percentage fee shows we have great faith in the ability of our relationship to deliver the goods."
This is the first time a South African insurance company has entered into a partnership deal of this kind. "In fact it is the only one of its kind that we know of worldwide," says Fitzgerald.
No employees will be retrenched as a result of the agreement. Approximately 30 information technology professionals will move from Sage to EDS, receiving broadly comparable terms and conditions.
Sage has for a number of years outsourced its computer processing to EDS. The two companies have established a successful business relationship on which they now intend to build aggressively.
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