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Insurance is a business as old as business itself, expertly greasing the wheels of commerce by absorbing risks that would otherwise slow down the engines of growth. Insurance companies have long sold a promise—“We will take the financial hit for you so you can do what you do best”—and made good on it.

But when you’re a business this old, dust collects. The industry’s inherent conservatism encumbers out-of-the-box thinking—not a good thing in an era remarkable for its entrepreneurial breakthroughs, technological innovations and disruptive new ways of providing service.

Obviously, the buck stops with insurance company CEOs. The question is: Do they have what it takes to lead their companies to be competitively unique and successful?

Apparently, they don’t. This publication recently surveyed insurance company executives, asking if they believed their next CEO needed to be different than the current one. Overwhelmingly, they said yes.

The findings prompted us to reach out to more than a dozen insurance companies that had recently replaced their CEOs to ask whether or not their skills and game plans differed from their predecessors. Unfortunately, they all declined the opportunity. (See Sidebar: “New Blood, Same Veins”).So, we posed the same question to an array of management consultants, executive search firms and industry analysts. By and large, they echoed the same refrain: New leadership skills are required.

In a nutshell, the interviewees offered up the following criticisms:

• Too many of today’s insurance company CEOs come up through the ranks, as opposed to having experience at different insurance companies.
• Many lack experience or knowledge about technology, limiting the company’s ability to understand and leverage needed data analytics, predictive modeling and multiplatform distribution tools.
• Since the CEOs often ascend the corporate ladder one rung at a time, they tend to develop political allegiances that obstruct the need for transformative changes.
• They are inured to doing things the ways in which they were always done, lacking the courage to break with the past and establish a culture of entrepreneurialism.
• They tend to be at an age when they have less interest in tomorrow’s customers or the unique ways in which they prefer to shop and interact.
• While they can imagine disruption coming from entities like Google and Amazon and discuss the threat, they are persuaded by the industry’s long history that traditional approaches are best.

Obviously, not all CEOs in the industry conform to the above profile. But far too many do. “Insurance company CEOs and the companies they lead are staunch and staid, not nimble and quick-thinking,” said Billie Blair, president and CEO of Los Angeles-based management consulting firm Change Strategists Inc. “Without any reservations, I can say that leadership at the top of this industry needs to change.”

Others share this view. Rita McGrath, an associate professor at Columbia Business School and author of the new book “The End of Competitive Advantage,” had this to say: “Insurer CEOs of yesteryear were mostly successful by running businesses in a fairly predictable environment. Skills that promoted optimization and efficiency were valuable, as companies operated on platforms of well-understood operations. But today’s competitive environment is different.”

Like many industries, she explained, the insurance industry is under siege by innovative alternatives to the status quo—“competition that comes not just from within an industry but across industries,” McGrath said. “Today’s CEOs need to be skilled at pattern recognition and anticipating how things might interconnect.”

Such talents are often elusive at the top, however. “Historically, the leaders of insurance companies understood underwriting, investments and expense management, but that’s mere table stakes now,” said Paul Winum, senior partner and practice leader of board and CEO services at executive management consulting firm RHR International. “Today’s CEOs need to be able to innovate in product design, select which markets to play in or not, and appreciate new ways to engage the customer—particularly the ways in which the customers want to be engaged.”

The Digital Divide

Winum’s latter point resonates. Both people and businesses have become used to high levels of engagement from their real-time interactions with diverse businesses, using their mobile smartphones, tablets and laptops.

This expectation puts the onus on insurance companies to invest in digital platforms that strengthen their relationships with customers, making it easier for them to shop for insurance, understand these complex products and compare them. Similarly, insurers need to deploy the technology solutions that provide these optimum levels of service.

Unfortunately, the industry has long been castigated as a technology laggard. Carriers have only recently invested in efforts to improve sales, distribution and customer experiences, much less the tools needed to enhance operational efficiency and expense management. Insurers also were late in adopting software systems easing transactions and communications with intermediaries and personal lines/small commercial lines customers.

Another perceived drawback are the industry’s talent recruitment initiatives. “The insurance industry as a rule doesn’t tend to attract Ivy League grads, skilled data scientists or the topnotch people other industries attract,” said Sean McDermott, director of consulting services at Towers Watson. “When they do hire sharp people, these individuals get good training, learn the ropes and then move on to a better job at another company.”

While many carriers have caught up fast in the last decade, they are still slow to hire outside the norm or seize upon newer technologies, giving up vital early mover advantage to competitors. A case in point is usage-based insurance (UBI), a form of automobile insurance whereby the premium is dependent upon the type of vehicle measured against time, distance, driver behavior and location.

Progressive was one of the first insurers to realize the value of UBI, leveraging GPS technology and cellular systems tracking miles driven. Others were late to the party, giving ample room for newcomers. One party crasher is startup auto insurer MetroMile, which is funded by a variety of private equity investors. The insurer charges drivers two to 11 cents per mile in premium, advertising that consumers driving less than 10,000 miles per year can save at least $400 in annual premium. It is now licensed to sell automobile insurance in four states.

Where were other personal lines carriers when MetroMile was nibbling at their market share? Stodgily sticking with the old menu.

“A CEO who is reluctant to get into UBI is likely to be reluctant to get into predictive modeling,” McDermott said.

Louis Hipp, executive vice president and head of the insurance practice at global executive search firm DHR International, also questions the ability of insurance company CEOs to assess the value of new technologies. “Boards and CEOs in some cases just aren’t conversant on the subject,” he said. “They’re not thinking about data analytics or predictive modeling.”

Rather, they’re stuck patching up legacy IT systems. “Insurance is unique in that when you sell the product, the insurance remains in place in many cases for years if not decades,” Hipp said. “Companies have a responsibility to continue to service the customer, which explains why the insurance industry more than other industries is beset by legacy systems. They have to continually throw capital at these systems—money that otherwise could go to more sophisticated technology solutions.”

Not that some carriers don’t understand the need for a more robust digital platform. “We’ve had several [insurance company] clients realize they were lacking insofar as data analytics and the other new tools. In one case, the board appointed the CIO to succeed the CEO.” (The presence of a nondisclosure agreement prevented Hipp from sharing the name of the CIO-turned-CEO.)

“How often do you hear of a CIO rising to the top of a business?” he asked.

Deliberate and Cautious, Painfully So

Not often, as most carriers stick with the cookie-cutter mold. Blair commented that many insurance company boards of directors tend to hire chief executives of a very particular personality and type. “They want someone who can be presented to the general and business public [and] who inspires confidence in the company’s financial security and stability,” she said. “It is very important to them to have someone who gives off the airs of competence and won’t let anything bad happen to the organization.”

Asked who this composite CEO looks like, Blair didn’t hesitate: “Mitch McConnell,” she said. What’s wrong with Mitch McConnell types? “Well, they’re not Steve Jobs,” she replied.

Boards of insurance companies also tend to dislike change, which then affects their succession-management decisions. “In the insurance business, things always change moderately—not quickly like you see in manufacturing, retail and other industries,” said Jim Auden, managing director and leader of North American Property/Casualty Ratings for Fitch Ratings.

This is driven by the deeply dug conservatism at the root of the business. “Insurance companies need to be pretty conservatively managed,” Auden explained. “Look at the balance sheet and the conservative investments. Insurers have to be well capitalized, and they have to husband capital well. There are still just two ways to make money in this business: underwriting and investment returns. So companies tend to hire CEOs that are adept in these areas, who will be evaluated on the profits and returns to shareholders.”

Auden nonetheless agreed that CEOs require other skills to succeed in today’s fast-changing, competitive global environment. These run the gamut from a better appreciation for customer acquisition to a firmer grasp of technologies to optimize processes, enhance collaboration, price products better and improve capital adequacy for regulatory compliance purposes.

“Many CEOs are moving down this path, but the fact remains that underwriting and expense management are the key talents boards want,” he said. “This is why so few CEOs come from outside the industry. If they did, they wouldn’t be able to master the intricacies of insurance instantaneously.”

Is insurance so esoteric that only seasoned industry executives can vie for the top spot?

Hipp said it is indeed rare for a CEO to come from outside the industry. “Much of the world can’t fathom the regulatory hoops that an insurance company must jump through to get its products out to the market,” he explained. “Companies want to hire individuals who appreciate these challenges, and they tend to be older and come from inside [the industry].”

McDermott agreed: “You’re not going to see a 28-year-old insurance company CEO, unless he or she is at a startup.”

Best of the Breed

Assuming the industry’s leaders continue to be insiders with the customary underwriting and investment skills, can they effectively lead their companies in today’s transformative business climate? The interviewees believe that they can, provided they hire innovators with the skill sets to introduce needed changes.

“Rather than the old paradigm of the Superman CEO, the CEO of today needs to be someone who is able to attract talent with deep expertise in these evolving domains and then serve as the conductor of the ensemble,” Winum said.

Hipp shared this opinion, boiling it down to the creation of a culture of innovation. “‘Steady as she goes’ just isn’t going to cut it anymore,” he said. “CEOs need to have the ability to get people to behave differently going forward, to be willing to move in new directions and not fear this.”

McGrath agreed. “Tomorrow’s CEOs need to be comfortable with allowing many decisions to be made at lower levels in the organization because there just isn’t time for information to flow up and down a hierarchy anymore,” she said. “Shared values and a common culture need to guide decision-making.”

The bottom line: CEOs don’t need to know everything. They don’t need to be Steve Jobs. But they do need people on staff to fill in the voids.

This article was originally published at CarrierManagement.com