Legal action on Pru's India deal may stall outsourcing

Union considers legal challenge over claims that Prudential did not properly consult staff on redundancies.

Union considers legal challenge over claims that Prudential did not properly consult staff on redundancies.

Hundreds of IT staff at Prudential face an uncertain future after the insurance giant announced plans earlier this week to close its UK call centre and move operations to an offshore service centre in India.

Although Prudential insisted that IT professionals at its Reading call centre would not be among the 850 redundancies, the IT union MSF Amicus claimed it was unlikely that all of the call centre's IT staff would be kept on.

Union leaders are considering mounting a legal challenge to the deal with Indian supplier ICICI OneSource, alleging Prudential had not undertaken a proper consultation with its workers.

Mark Woods, chief executive at Prudential UK, said, "We have adhered completely with the requirements and obligations on us," adding that he hoped to continue consulting the unions. Prudential expects the deal to deliver annual savings of £16m from 2006.

With a growing number of companies moving IT development and support offshore to cut costs, a legal challenge to the Prudential could delay or block future offshore deals.

High street bank Abbey National announced last month that it was considering outsourcing its IT in contracts that could be worth up to £100m a year.

Chris Gray, representative of MSF Amicus at Prudential, said staff had been informed only two weeks ago by Prudential about the decision to shut down the call centre.

He also claimed the consultation was inadequate because the decision to transfer call centre support overseas had already been taken. "We are having a staff meeting this week but our decision is to challenge the outsourcing deal to India," he said. "What happened could open the floodgates for other insurance companies to go down this route."

Legal experts said the definition of what constituted a proper consultation with employees before redundancies can be announced is a grey area in employment law, and is ready to be tested in the courts.

Insurance industry experts said more offshore IT outsourcing deals are inevitable as companies push to reduce costs, in response to tighter margins.

"Insurers have always handled almost every aspect of the value chain in the whole customer proposition, from financial advice and selling to product development and administration," said John White, executive chairman of insurance consultancy Winchester White.

"But now [with tighter profit margins on products] insurers have got to service each of these components from a cost-effective source."

In the long term, the trend towards outsourcing is likely to reduce the need for internal IT support staff in the industry, he added.

Who is outsourcing?
  • One in five US Fortune 100 companies has outsourced some software requirements; UK businesses are following suit

  • UK users of offshore outsourcing include Royal & Sun Alliance, J Sainsbury, Asda, and British Airways

  • The main attraction is the potential to cut IT running costs because of lower costs for skilled labour overseas

  • India is the leading provider of offshore outsourcing but markets are emerging in Asia, South Africa and South America.

Read more on IT outsourcing