Finding Shared Values: For Abbey Life, outsourcing required a real partnership, not just service. (CaseStudy).

In an economy of mergers and acquisitions, it's not unusual for a company to find itself owning a business unit that holds little or no promise for growth. While that business unit may not fit well into the new parent company's structure, it can still require an ongoing responsibility of service to customers.

Lloyds TSB, one of Britain's largest retail banks, faced this circumstance last year, when the acquisition of life insurer Scottish Widows overshadowed Abbey Life, an earlier acquisition in the same market. Suddenly, Lloyds TSB owned three life insurance companies: Scottish Widows, founded in 1815 and the second largest provider of pensions, life and investment products in the United Kingdom; Abbey Life, founded in 1961 and acquired in 1996; and its own in-house company, Lloyds TSB Life, which serves bank customers.

That, says Abbey Life CEO and Scottish Widows COO Ian Thompson, was two companies too many. "Given that Scottish Widows is the UK's primary life insurance brand, it became the sole brand for all distribution channels," he explains, "and no new business was written in the other two, making them closed books."

Lloyd's TSB Life could continue to be administered in-house. Abbey Life, however, was a different proposition. Though it would seek no new business under the strategy, it remained a thriving company with a broad portfolio of policyowners expecting the same level of service they had always enjoyed. This posed a challenge on several fronts. In the 40 years since its founding, Abbey Life had established a complex set of policies and procedures, along with some 16 or 17 legacy systems that needed to be maintained or updated. In addition, compliance with the new euro currency standards was looming.

"With no funding from new business, the thought of managing both the day-to-day operations and the projected costs of euro compliance was daunting," says Thompson. "And even while we were running a closed-book system, we wanted and needed to make sure customer service remained at appropriate levels."

The decision was made to outsource to Unisys, which created Unisys Insurance Services, Ltd. (UISL) to handle the administration of Abbey Life's in-force policies.

Outsourcing was at its core a strategic decision, says Thompson. "We're trying to move forward our Scottish Widows business and maximize its potential," he says. "Taking Abbey Life off our radar freed up the resources to do that. Our core competency is about growing our new brand. Unisys's core competency is about running the day-to-day operations, the computer systems, the customer service, the maintenance versus growth."

The outsourcing decision has other long-range implications, as well, since future acquisitions may result in similar closed books. "We're constantly comparing and contrasting the UISL's ability to run that sort of book outside our operation with our ability to do it inhouse," says Thompson, noting that the administration of the Lloyd's TSB brand has been insourced. "We're certainly looking at the possibility of putting more books into the model we're building with UISL."

Lloyds TSB established three strategic objectives for the outsourcing deal: one, to meet customer needs and achieve customer satisfaction; two, to meet the unit costs profile required in order not to lose money; and three, to find a partner that would provide a stable and rewarding environment for the 1,000 Abbey Life staff that would be joining UISL.

"We did not approach this solely from a cost perspective," says Thompson. "It had to do more with the way we think about our customers and our employees. We have a duty of care, and we wanted a partner to whom a high level of customer service would be as important as it is to us, and a company that would look after the staff we had nourished to that point.

"Yes, we wanted to drive down costs, but we take a long-term view of that," he continues. "If your employees have a good professional future, they will be motivated and will find smarter ways of doing things. We were looking for a cultural fit, because if morale is high, then customer service goes up while unit costs go down. So it was an issue of finding shared values in the way we do business."

That sense of shared values also drove the process by which Lloyds TSB negotiated the deal. Rather than inviting blind bids, it opened its books to prospective partners and shared its existing costs in maintaining the Abbey Life portfolio of policies. "We actually said, 'Look, we understand that you need to make money, as well,'" says Thompson. "People said, 'You can't do this, you can't share that kind of sensitive information,' but we did, and it's working."

The UISL model, says Thompson, has brought a new set of challenges to Lloyds TSB since its inception in February. The agreement carries stringent service-level requirements, which has meant developing a team of people charged with a sophisticated monitoring and collaborating role.

"When you outsource, you don't just wash your hands of the matter," he says. "You now have a strategic partner sitting alongside you, and you have to build a new set of skills, which I would define as account management. It means you have to do a lot of things differently. We didn't view this as finding a supplier of services that we would invite in when it suited us, but as developing a partnership. Big outsourcing deals can't work any other way."