Friends Life was created this year after insurance group Resolution acquired Friends Provident and the life insurance divisions of private healthcare provider BUPA and insurance provider Axa.

As a result of these acquisition, the group has a large ‘legacy’ or ‘closed book’ business – claims that were sold in the past and still require administration but which are no longer making money. These are currently processed in a number of different locations using various different systems.

Under the deal announced today, Diligenta will both consolidate the IT systems used to process these legacy claims, and provide the manpower to do so. Diligenta is expected to deliver the newly-converged service from 2015.

Friends Life expects that around 1,900 of its current employees will transfer to Diligenta. Another 500 jobs, which currently reside with existing outsourcing suppliers including HCL and Capita, will be unaffected.

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The company had previously said that it will deliver £112 million in annual cost savings as a result of the merger. Operations director David Hynam told Information Age this morning that it now expects to save a further £31 million annually once the new service is in place.

Friends Life selected Diligenta for a number of reasons, Hynam explained. Firstly, it wanted to outsource both IT and business processes to the same supplier, to reduce the risk and complexity of the outsourcing programme.

“We wanted a single provider to be contractually responsible for the service”, he said, and only a small number of suppliers were able to offer this.

Hynam also said that Friends Life was impressed by TCS’ BaNCS financial services IT platform and by Diligenta’s track record in managing legacy life insurance operations.

He made particular mention of Diligenta’s £486 million, 12-year contract with ‘closed book’ life insurance fund consolidator Phoenix Group, in which 1,000 jobs were outsourced.

“The view is that the Phoenix deal has gone extremely well,” said Hynam.

According to Diligenta, the “vast majority” of employees that were moved from Phoenix five years ago still work for Diligenta in the UK – i.e. their jobs have not been moved to India.