A comprehensive information technology contract between the Fireman’s Fund Insurance Co. of Novato, Calif. and Montreal’s CGI Group Inc. originally valued at US$380 million has been terminated.
Signed in August 2001, the 10-year deal saw CGI provide IT support services to 80 Fireman’s locations
across the U.S., take over its Phoenix data centre, staff its help desk, and move some 296 employees over to CGI.
However, on Oct. 20 the companies announced the contract would be terminated effective May 1 2005, after Fireman’s Fund tried unsuccessfully to renegotiate the terms.
Losing the Fireman’s Fund contract will put a $200 million dent in CGI’s order backlog, which, including the termination, was $13 billion in Sept. 30.
Fireman’s Fund public relations director John Kozero said about the same time as the CGI agreement the company underwent a period of fairly extensive change, when asbestos litigation in the U.S. necessitated putting US$1.3 billion in litigation reserve.
“”We had some serious red ink flowing as a result of that,”” Kozero said. “”We underwent a turnaround in which we shed five lines of business, went from 8,500 employees to 4,600, and stayed only in those markets where we could be a leader. We became more of a niche player.””
The company has been back in the black since the end of 2003, and Kozero said it is now focusing on becoming an easier company to do business with. A major part of that is a new IT strategy.
Fireman’s Fund sells insurance through a network of independent agents across the country, which in turn compare the policies of many insurance companies to find the best deal for their customers. Being easy to deal with is a major competitive advantage.
Any way a business can lose money may be coverable by insurance, from protecting buildings and equipment to slips and falls by customers. It’s a lot of factors for an agency to consider, he said.
“”We had hoped CGI could be part of that future, but I think some of our needs and what we could pay for didn’t quite meet what CGI could provide,”” Kozero said. “”They recognized it and we recognized it. We discussed this over a period of months and realized it would be best for us to take a different track, and they agreed.””
Kozero said the company has already signed agreements with a number of vendors, very small compared to their contract with CGI, to move forward.
Among the initiatives planned are online tools that clients can access securely to track the status of their insurance claims. It has also developed more than 20 industry-specific portals customers can access for a range of information and services, including everything from industry news and claims information to preferred pricing from vendors.
“”All of these things are part of the overall direction we’re heading, and it will continue to become more sophisticated,”” Kozero said.
Still, he said the deals the company has signed don’t come close to replacing the CGI contract that will end next May. He said it’s too early to say what functions might be brought in-house, what might be dropped and what might be outsourced.
“”At the moment we’re eliminating no possibility. The outsourcing we did through CGI was substantial, it was essentially the entire infrastructure of our operation.””
CGI spokesperson Eileen Murphy said the outsourcer tried to work with Fireman’s Fund to restructure the original outsourcing agreement but was unable to accommodate its needs while maintaining a mutually beneficial arrangement.
“”Our client came to us for additional savings above and beyond what we’d agreed upon, so we sat down to see what was reasonable,”” Murphy said. “”The contract was not performing at the margin levels we were used to already, so both companies decided to part ways. I think they have gone through a lot of changes as a company over the last few years, to the point where they were looking at everything to obtain more savings.””