CIO workshop: Digital transformation at UNIQA Insurance Group

The combined CIO and Chief Digital Officer of a large insurance company explains his model for undertaking digital transformation and managing disruption. He offers a wealth of lessons for every digital leader.
Written by Michael Krigsman, Contributor

Every Chief Information Officer today has digital transformation in mind, although the challenge of rethinking business models based on data and customer relationships go far beyond the traditional boundaries of IT.

The CIO role becomes more complicated as digital transformation erases traditional boundaries. We see this lack of clarity about the role reflected in the rise of Chief Digital Officers. In some companies, the CDO is independent of the CIO. In others, the CDO reports to the CIO. And sometimes the two roles merge into a single individual.

Dr. Alexander Bockelmann, Group CIO and CDO of UNIQA Insurance Group, offers an example of the latter case. UNIQA is a large insurance company with about $7 billion in revenue.

As part of the CXOTALK series, I spoke with Bockelmann together with guest co-host and fellow ZDNet contributor, Dion Hinchcliffe. The conversation presents an in-depth look at how a large company thinks about innovation and its transformation.

Bockelmann explains that the insurance industry suffers from the " expert's dilemma":

Very successful companies face what I call the "expert's dilemma." You tend to project your past success to the future. And, in the new world (in this case, the digital world), even though the rules of the game have changed. What made you strong in the past will not make you strong in the future, so a mindset shift needs to happen to gain momentum on a digital journey. So, you have technical opportunities and cultural (mindset) opportunities for improvement.

In the case of insurance, he explains, low interest rates threaten the basic underlying business assumptions of the insurance industry. In response, many insurance companies have optimized their current business models, but the real key to future success is developing new products and business models that reflect current realities. And that's the hard part.

The conversation between Bockelmann, Hinchcliffe and myself explores a wide range of topics that are relevant to any organization that faces disruption. He is a sophisticated observer and describes digital transformation as a series of models.

Watch the video embedded above to hear the entire conversation. You can also read a full transcript over at the CXOTALK site.

Why is "customer value" central to digital transformation?

If you lose the customer value creation part ─ if you are not relevant to your customers, then you will be absorbed by somebody else's service environment and ecosystem. Therefore, the ability to be relevant for your customer ─ to have useful, enjoyable, transparent, and relevant services ─ becomes the win-or-break point in a business strategy.

What are the five dimensions of digital transformation?

Digital has five different dimensions. Imagine a simple diagram with a horizontal and a vertical axis, the way we illustrate our digital approach is on the horizontal axis.

We have the internal digital activities, which we did for a couple of years before all the buzzwords, basically in here. That's everything that has to do with automation, process and product standardization, legacy modernization ─ all those activities; that's the traditional home-turf of the CIO.

The second dimension ─ the vertical dimension ─ is the external role, which is one of the key pillars digitization: "How are you approaching your customer?" And from an IT perspective, you have the internal employee as a customer; you're business partners as a customer and your ultimate business customer. Each of those is part of our digital endeavor. We want to change how they experience the world on a daily basis ─ make it more value-driven. And not only do that for our customers but also our employees. Otherwise, we will not have the momentum that we need. So those are the framing two conditions.

Within that little graph, you then have the dimension of data and analytics, which is very important for digital business models. And, the crown jewel is the development of new business models.

And, underlying all of that, the key enabler to do any of that work is a cultural change in the company. If you don't do that, your digital journey will not work very well.

How do you create digital transformation in an organization?

We're trying to manage three different phases.

First, you have to take care of your business of today ─ your customers of today. You have to deliver on your promise. So, you need to develop and optimize today's business, which is the automation, standardization, improvement part of the journey.

Then you have the second phase, which is the transition phase moving from your existing business model; and augmenting that, strengthening that, with new business models. So, there's a big change management component in there.

Then, you have to provide digital leadership. What is that? Imagine you landed on an island, which is your current state where you work today. Unfortunately, your boats are beginning to smolder and to catch fire. So, your old model starts to burn, and you have no idea yet what new boats you're building ─ what the new business models will be ─ because nobody knows today what tomorrow's silver bullet will be. As a digital leader, one of your key requirements is to manage that transition phase and keep your employers and peers engaged in that journey.

The third phase is building the new business models. And there, it's all about learning with the experience, not trying to reinvent the wheel by being the world dominator in the first step.

Think big, start small, and learn from customer feedback.

What are the challenges?

Very successful companies face what I call the "expert's dilemma." You tend to project your past success to the future. And, in the new world (in this case, the digital world), even though the rules of the game have changed. What made you strong in the past will not make you strong in the future, so a mindset shift needs to happen to gain momentum on a digital journey. So, you have technical opportunities and cultural (mindset) opportunities for improvement.

The insurance industry does not have much experience with action, where something dramatic needs to happen because the business model was so stable for such a long time. So, you don't have a lot of experienced change agents that have done it before. Insurance has not reinvented itself in the past, and that's a major transformation challenge.

In the past, the business model of life insurance for an insurer was very simple. Get the premium. Put it into an asset management account. Get 10% returns, and promise your customer let's say 4-5%. You have 2% admin expenses and 3% of that asset-under-management income. The investment income is your profit. So that business model was very simple.

If you have an interest rate that is zero or negative, that model doesn't work anymore. But, you have promised your customers an annuity. If it's a fixed annuity, you have promised them a certain return. The life insurance business right now is not profitable for most life insurance companies, so there is a sense of urgency.

Look at health insurance. Health insurance, the company puts some of your premium in an asset account. And this [assumes] that you get a certain interest rate to pay for higher medical expenses when you get older. If you don't get that interest rate, then you must either ask for more money or reduce the level of service. Since you don't want to do the latter, you have to do the former, which customers do not appreciate. So, two of your three business models are currently under pressure.

The third one [is] non-life. For many insurance companies, 50% of their non-life business is motor insurance. You know what's happening with motor insurance, with Teslas and other innovations coming our way. So that business model, where you insure a driver of a vehicle, is evaporating.

So, three out of three business models are under pressure in insurance. If somebody does not have a sense of urgency to do something, then maybe insurance is not the right place to be right now.

What's the role of data in developing new business models?

All digital models are data-driven business models. Outside of that, as an insurance company, you have a lot of information available, and most insurance companies are quite good at analyzing those for whatever opportunities and insights you can gain.

But, those models have not changed much over the last decades, with information linked to underwriting, risk underwriting, assessing a risk, and invoicing, billing, claims handling, for example.

Today, however, with the internet, mobile devices, the internet of things, telematic technologies, you have a much, much bigger universe of data points. This data gives you the opportunity to improve existing risk-based products with new service offerings.

What advice do you have on digital transformation?

First, take ownership, and leverage that sense of urgency. Kim Stevenson from Intel has a famous quote saying there are no IT projects, only business projects. Today, there are no IT leaders, only business leaders. Therefore, every new digital business model is an IT-enabled and empowered business model. So, CIOs should feel empowered to have a voice in that.

Second, provide digital leadership. Your C-suite is may not be well-educated on new technologies. You have an opportunity for coaching and education there. And, whatever you do, do not build "digital strategy," but a strategy for a digital world. That is a play on words, but it implies a completely different perspective if you design your strategy that way.

And third, start now. Think big so your idea can scale, but start small and learn from your customers. Engage customer feedback as early in the process as possible to improve the outcome.

If possible, engage your employees. Find change agents at all levels ─ from the C-level down to the individual expert at the desk ─ to carry the torch with you. Once we created the environment, a lot of people stepped up and helped us with our first steps of the journey.

Please see the list of upcomingCXOTALK episodes. Thank you to my colleague, Lisbeth Shaw, for assistance with this post.

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