IBM signs US$157M technology outsourcing deal with Fireman's Fund Insurance

IBM Corp. has signed a $157-milllon-US deal to take over the technology operations of Fireman's Fund Insurance Co., a few months after the big California-based auto and property insurer scrapped an IT contract with Montreal-based CGI Group Inc.


Under the seven-year deal, announced Wednesday, IBM will supply 5,200 personal computers and use its data centre in Boulder, Colo., to provide technology services to Fireman's. The insurer will pay for computing services it uses, saving it more than $10 million a year in technology costs over the life of the contract, IBM said in a release.


Separately, Fireman's will save a further $5 million US a year in telecom costs - about $33 million US in total - under an agreement with AT&T Corp.


The deal is part of a broader trend for companies to outsource technology services to specialists such as IBM, CGI Group and U.S.-based EDS to reduce operating costs. In many cases, technology employees are transferred to the outsourcing company.


The outsourcing market is huge, with many billions of dollars at stake, but is intensely competitive.


In mid-October, CGI and Fireman's announced their information technology contract would be terminated, effective May 1, 2005 - a move that CGI said would cut the Montreal company's order backlog by about $200 million Cdn.


At the time, CGI (TSX:GIB.SV.A) said the contract was not meeting the company's profitability targets and Fireman's was seeking more cost cuts in a renewed agreement.


Fireman's, based in Novato, Calif. is a division of Germany's Allianz AG, one of the world's biggest insurance companies.


In trading on the Toronto Stock Exchange on Wednesday, CGI shares rose four cents to close at $7.59. IBM shares rose 21 cents to close at $95.21 US on the New York Stock Exchange

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