Montreal’s CGI Group Inc. has renewed a trio of five-year contracts valued at $40 million.

The clients include Pilot Insurance Company, The Dominion of Canada General Insurance Company and CGU Group Canada Ltd., all based in Toronto.

Pilot Insurance provides a wide range of home and automobile insurance products exclusively in Ontario; The Dominion is one of Canada’s largest property and casualty insurance companies, as is CGU, a wholly owned subsidiary of London, England-based CGNU plc, which has annual premiums in excess of $1.7 billion.

Twenty-five-year-old CGI counts among its clients 20 of the top 25 insurance carriers in the United States and 17 of the top 25 in Canada. CGI insurance practice based out of Richmond Hill, Ont., falls under the financial services at CGI. Financial services account for 40 per cent of the company’s revenue.

CGI will support and maintain the information technology services for CGU’s commercial lines applications, including the administration of its underwriting, billing and claims processing, as well as supply the company with Ratabase, a ratings system for personal and commercial insurance lines. The commercial lines applications support CGU’s administration of all underwriting, billing and claims processing.

CGU writes about $650 million in commercial premium income, all of which flows through CGI’s Mississauga, Ont. data centre.

For both Pilot and Dominion, CGI will provide IT to support and maintain the company’s personal lines applications.

David Patrick, CGI’s senior vice-president of insurance solutions and services, said the insurance industry is looking to curb cost after a couple of years of slim profits, and outsourcing their IT is one manner of doing that. “”Their claims costs have far exceeded what they thought based on the revenue they’re getting for policies,”” he said. In addition, the industry has not been able to offset those losses with investment income due to the poor performance of the stock market, said Patrick.

“”The industry is really suffering from lack of profitability, so by working with CGI, they are reducing part of their expenses and helping to cope with the lack of profits.””

Outsourcing of IT also allows customers to better focus on their core business, which isn’t unique to the insurance industry. Outsourcing accounts for 70 per cent of CGI’s revenue.

Patrick said some customers are completely outsourcing their IT to CGI, while others still maintain some IT capability in house. “”It’s mainly driven by cost and the value-add that we have,”” he said. “”We have 200 people (in our insurance practice) who are experienced in the insurance industry, so they’re not just generic IT people. They understand policies, ratings, claims, the financial reporting and the statistical reporting and the distribution channel problems.””

CGI also does the application maintenance and development, not just run the work, added Patrick. “”They don’t have to worry about the people problems and the hiring. We’ve got people that understand their business problem.””

The trend to outsourcing is growing in general, he said, including in the insurance industry.

Another trend is componentization, Patrick said. Customers aren’t looking to do major, long-term IT projects. Instead, they’re looking to incorporate specific best-of-breed application modules into existing systems. “”It’s a lot of customization. There’s no real off the shelf stuff. There’s no shrink-wrap solution.””

Jason Bremner, an analyst with IDC Canada in Toronto, said CGI is a very active player in the insurance industry and the financials services area in general. Changes in any industry often spur companies to outsource their IT, he said. “”One of the common drivers is deregulation.””

Cost is one of the issues, said Bremner, but not the only issue. “”Part of it is a flexibility issue. Outsourcing can often and should lead to greater flexibility in service delivery,”” he said. “”As a result, if you’re undergoing lots change, you want to have a flexible organization.””

Deregulation usually means increased competition, and flexibility can be crucial when it comes to delivering new product lines and services quickly. As the energy sector has approached deregulation, organizations have outsourced their IT, said Bremner, “”In those situations, they felt that outsourcing parts of their organization lead to flexibility and the same can be said of insurance.””

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