The Disconnected Digital Insurer

Accenture has recently published a very interesting survey on the digital transformation of the insurance industry in EALA (Europe, Africa and Latin America. Looking at the responses, it is evident that the executives in the industry realize that they have to change to align with changing customer expectations, new regulations and new competitors. I have been in the financial services industry for more than 20 years but I have never seen the sense of urgency as expressed by the 76% of the executives that foresee that they will be challenged by new entrants like Google within the next three years. So it comes as no surprise that as many as 78% of the interviewed insurance executives claim that they will increase their investments in the digital transformation of their sales & distribution. But I will argue in this blog post that many of them (42%) is about to set-up a governance model that will destroy shareholder value.

The report indicates that customer centricity will remain the top priority for insurance carriers. In addition, it is evident that the executives realize that they have to streamline processes and address the entire value chain to become a true digital insurer.

But their responses on who will drive the transformation trouble me. 42% of the companies will create a new role, a Chief Digital Officer, that will take on the challenge.

In my opinion, It is flawed to delegate the transformation of the entire value chain to an individual that will be forced to challenge all his/her peers on the same level in the executive team to succeed. Affärsvärlden, the most respected business magazine in Sweden, wrote a very interesting article (in Swedish) last year on another new and very popular title, the Chief Strategy Officer. They analyzed all the 50 listed large caps on the Stockholm Stock Exchange and grouped them in two categories based on whether they had a Chief Strategy Officer in the executive team or not. Given the novelty of the role, it may be surprising that as many as 40% of the companies had a Chief Strategy Officer. But the differences in performance between the groups are even more striking. The companies with CSOs where outperformed by their peers where the CEO remained in control of the execution of the strategy as presented in the graph below:

Naturally, given the differences in performance, the companies without the CSO were valued higher than their peers (P/E 15,6 vs 14). A cynic may argue that it is extremely costly to hire a CSO. The average loss in shareholder value amounts to 12 billion SEK !

My verdict on the Chief Digital Officer is not as harsh as Affärsvärlden’s on the Chief Strategy Officer. They concluded their analysis with the headline that can be translated to “The Chief Strategy Officer – a sure sell signal”. But I would really like to see the CEO of the Insurance Carrier to drive the necessary digital transformation agenda and not merely appoint a Chief Digital Officer that very well may be the scapegoat when Google or any other new entrant redefine the industry.

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