Life partners.

Life insurance conglomerate Pearl Group is not going to get any new customers, ever again. But this is not the result of some disastrous management strategy, but because of the idiosyncratic business in which it operates: it manages closed insurance funds - policies that are no longer being marketed, but on which the existing holders still claim.

That makes Pearl Group a business with no potential for sales growth. However, its executive team believes that it can still become more profitable.

For such a company, outsourcing IT has a natural appeal - it grants the business the benefits of leading-edge technology without the initial capital expense.

Indian IT-outsourcing provider, Tata Consultancy Services, has worked with Pearl Group in its various previous incarnations (Pearl as it is now is the result of the merger of three companies earlier this year) for 14 years, providing the IT infrastructure to support its customer management centre remotely from India.

To cut operational costs, Pearl sought a third party, Tata, that could operate the claims processing and administration processes at a reduced cost.

'What is peculiar about the deal between the two is that instead of being a business process service provider to Pearl, Tata has established a new subsidiary of itself, a 15% stake of which will be held by Pearl. This subsidiary will essentially own Pearl's business processes.

Initially at least, very little will change at Pearl. Of its 1,100 staff, 950 will now be employees of the Tata subsidiary, while the remaining 150 will continue to be employed by Pearl. But they will all still work in the same location, primarily Pearl's Peterborough headquarters, and do the same work as they did before.

For Pearl, the economies of scale offered by Tata resulted in a reduction in operational costs - one of the few avenues of profit open to the company.

It also provides Tata with a significant strategic benefit. That in turn ensured Pearl could negotiate the optimum price.

For Tata, the reason for establishing the subsidiary relates to regulation, says Amur Lakshminarayanan, VP & UK country manager. Companies that handle insurance claims in the UK must be registered with the Financial Services Authority (FSA) and abide by its guidelines, but it would not be in the interest of Tata as a whole to do this - the FSA rules would restrict operations in other geographies.

But what Tata gains from this arrangement is entry into the life and pensions industry. The experience gleaned from managing Pearl's business processes can transfer to similar businesses. "This deal brings us operational experience," says Lakshminarayanan. "Once the transformation is complete, we will be a world-class insurance and pensions process organisation. We will even be able to transfer our experience to the 'open book' insurance market."

Tata expects to generate revenues of [pounds sterling]480 million over the next 12 years as a result of its expansion beyond the realms of IT services and into insurance claims and pensions handling. It hopes to build a centre of 'life and pensions' excellence around Pearl's headquarters.

In the meantime, Pearl has managed to shift much of the cost of its business processes off its books.