A comprehensive information technology contract between the Fireman’s Fund Insurance Co. of Novato, California and Montreal’s CGI Group Inc. originally valued at US$380 million
has been terminated, with both sides agreeing to go their separate ways.
Signed in August of 2001, the 10-year deal saw CGI provide IT support services to 80 Fireman’s locations across the United States, take over its Phoenix data centre, staff its help desk, and move some 296 employees from Fireman’s Fund to CGI.
However, on October 20 the companies announced the contract would be terminated effective May 1, 2005, after Fireman’s Fund tried unsuccessfully to renegotiate the terms.
Loosing 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. CGI has made several acquisitions in the last few years to move more aggressively into the U.S. market.
Fireman’s Fund public relations director John Kozero said around the same time as the CGI agreement the company underwent a period of fairly extensive change, when asbestos litigation in the United States necessitated Fireman’s Fund putting US$1.3 billion in an asbestos litigation reserve.
“We had some serious red ink flowing as a result of that,” said Kozero. “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 they are now focusing on becoming an easier company to do business with. A major part of that focus 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. That’s even more true with business insurance, which Kozero said accounts for 85 per cent of its business.
Any way that a business can lose money may be coverable by insurance, from protecting buildings and equipment to slip and falls by customers and shipping product by land, sea and air. It’s a lot of factors for an agency to consider, he said.
While Fireman’s Fund has had an evolving IT relationship with the agencies since the mid-1980s, Kozero said after its reorganization the company is more focused on improving and developing that relationship.
“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,” said Kozero. “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 Fireman’s Fund has already signed agreements with a number of vendors, very small compared to their contract with CGI, to move their vision 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 over 20 industry-specific portals that customers can access for a range of information and services, including everything from industry news and claim information to preferred pricing from vendors for products and services ranging from work boots to data backup.
“All of these things are part of the overall direction we’re heading, and it will continue to become more sophisticated,” said Kozero.
Still, Kozero said the deals they’ve 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 may be brought in-house, what may be dropped, what may be outsourced again.
“At the moment we’re eliminating no possibility,” said Kozero. “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 were unable to accommodate their 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,” said Murphy. “The contract was not performing at the margin levels we were used to already, so both companies decided to part ways.”
As for a future relationship between Fireman’s Fund and CGI as Fireman’s Fund considers outsourcing other work in the future, Murphy said that is just speculation at this point. CGI has said it will work closely with its client to ensure a smooth transition.
“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,” said Murphy. “Certainly outsourcing is one way of doing that, but at this point it’s too early to speculate.”
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