TCS No.2 insurance BPO service provider in UK

Tata Consultancy Services (TCS) has become the second-largest insurance business process outsourcing (BPO) provider in the UK, after winning two deals worth £250 million (around Rs1,800 crore). UK-based Capita is the number one player in this space.

Diligenta, a subsidiary of TCS, had yesterday announced that it had acquired Unisys Insurance Services (UISL) from Unisys Corporation, in lieu of which the company received business worth £250 million for the next six years. With this, Diligenta won business from Phoenix Group (earlier known as Pearl Group) and Old Mutual International. Phoenix Group is an existing customer of Diligenta.

Diligenta is already in talks with a few more insurance players for similar deals. “The cycle time for deals to materialise in case of Diligenta is six months to a year, especially for similar deals. So, in the next 12-18 months, we will have something to share. But winning these deals validates our strategy,” said Phiroz Vandrevala, chairman of Diligenta and executive director at TCS.

TCS, the country’s largest information technology (IT) services provider, took almost four years to develop a platform for the insurance segment in the UK. “We did not want to do a lift and drop kind of work in this space, and we wanted to partner in transformational work. It has taken four years to develop the platform. There was skepticism around this platform, but in April this year, we went live with two million policies for Phoenix,” said Vandrevala. For TCS, the UK is an important market, contributing 15 per cent to its revenue. TCS headcount in the UK will touch 2,000.

TCS started its journey in the UK insurance space in 2005, when it acquired the life and pension operations of Pearl Group under a 12-year £486-million BPO deal.

Diligenta now has three clients — Phoenix Group (additional extension to its earlier contract), Old Mutal International, and National Employee Savings Trust (NEST). In March, TCS had bagged a 10-year £600-million contract from Personal Accounts Delivery Authority (PADA) to administer the NEST scheme, but the deal is under the UK government scanner. Vandrevala said, “So far there is no change. In October, the government will take a final call on the overall IT deals. We will come to know about this only then.”

With these new contracts and an existing £486-million deal with Phoenix Group, analysts feel that TCS’ strategy is paying off. “I think TCS took a risk when it signed the deal with the Pearl Group in 2005. But if Indian IT firms want to break into the big league, they will need to take such risks. Also, with this win, they get much more flexibility,” said Vikram Gulati, director, Quantum Step, a UK-based research and advisory firm.

With these deals, TCS is also hopeful that the UK subsidiary will break even by the end of this financial year. “The work on the new contracts starts immediately. We are hopeful that by the end of this fiscal, we will break-even,” said Vandrevala. Diligenta reported a net loss of Rs56 crore in 2009-10 on a turnover of Rs456.2 crore, against a net loss of Rs41 crore on revenues of Rs527 crore in 2008-09.

TCS shares today closed 1.59 per cent down at Rs843.55 on the Bombay Stock Exchange.