The insurance giant hopes to save about 10% from its £50m annual IT budget. The deal includes mainframe, mid-range and desktop computing services.
Nearly 300 IT staff at Royal & SunAlliance will transfer to IBM next year.
The two companies will also invest in IBM's newlyformed innovation and transformation centre to develop technologies that will cut the time for bringing new products to market.
Andrew Turner, information systems strategic relationships manager for Royal & SunAlliance, said there were mechanisms in the contract to measure the performance of the innovation and transformation centre and ensure that it delivered practical technology and products.
"We have an annual review process for measuring key things and the setting of performance targets by using a scorecard," he said. "We want to make sure that the people are not wandering around the innovation and transformation centre with good ideas and not delivering them."
Long-term outsourcing deals can be a risky business for companies. Earlier this year rival insurance giant CGNU scrapped a seven-year £124m outsourcing contract with IBM as part of a drive to consolidate its IT systems.
And last month Computer Weekly revealed that a planned outsourcing agreement between Zurich Financial Services in the UK and IBM Global Services had collapsed at the 11th hour.
The proposed five-year contract, worth about £400m according to a source close to Zurich, would have seen nearly half of Zurich's IT staff transfer to IBM Global Services.
However, Turner insisted that the arrangement with IBM was flexible enough to change with the insurance firm's business strategy.
And, despite the recent string of "mega" outsourcing projects to run into trouble, analysts said users were learning how to negotiate more advantageous outsourcing contracts for their business.
"Outsourcing in really big deals is a comparatively new phenomenon over the last three to four years," said Tony Lock, senior analyst at Bloor Research. "Both sides have learned an awful lot over the years.
"I think users are becoming more savvy when negotiating agreements with suppliers, such as what technology to include and costing issues," Lock added.
IBM's year of outsourcing ups and downs
Pharmaceuticals giant AstraZeneca outsources its IT to IBM Global Services in a £1.2bn deal
CGNU scraps seven-year £124m outsourcing contract with IBM after only two years. The recently merged insurance giant said its decision to abandon its Perth datacentre was part of a drive to consolidate IT systems
Planned £400m outsourcing agreement between Zurich Financial Services in the UK and IBM Global Services collapses at the 11th hour. This would have seen nearly half of Zurich's IT staff transfer to IBM Global Services
Global travel and real estate giant Cendant Corporation signs a $1.4bn(£0.96bn) IT services deal with IBM. This is believed to be one of the travel industry's largest ever outsourcing contracts