With the results for IAG’s financial year behind them, the group’s directors now have another major matter to settle – who will lead the group into what MD Peter Harmer has described as “an increasingly complex and dynamic environment”.

The scale and force of that environment became clear on Friday, with the group reporting a 59.6% fall in net profit after tax for the year to $435 million, and Mr Harmer outlining a substantial list of causes.

Add to the pandemic impacts the issues surrounding regulation, changing market dynamics and increasingly volatile catastrophe risks, and the environment that will greet whoever succeeds Mr Harmer is monumental.

With CFO Nick Hawkins being named Deputy Group CEO in April, many have assumed that CEO Australia Mark Milliner starts the push for the top job from further back. However, sources close to the group’s inner politics say this is certainly not the case.

Mr Hawkins has strong credentials for the job. A former partner at KPMG, he has been the CFO for 12 years, He held a number of roles within finance and asset management and gained operational experience from a stint as CEO of IAG New Zealand.

A leading management consultant familiar with the group’s operations – who commented on the proviso that he was not named – told insuranceNEWS.com.au the decision to elevate Mr Hawkins while leaving Mr Milliner to oversee the division’s operational response to the group’s development activities and pandemic response “makes a lot of sense”.

The consultant says he doubts the IAG board under Chair Elizabeth Bryan will fall into what he says is a common trap in such situations: “Disregarding operational leaders and going for bright and shiny objects.”

He points to the example of Woolworths, which is still recovering from a succession decision its board made in 2011. Greg Foran, then the diversified retailer’s highly regarded Head of Supermarkets, was expected to succeed Michael Luscombe as CEO. The other candidate was COO Food and Petrol Grant O’Brien.

With market share under threat from a resurgent Coles, Foran presented to the board a plan to take on Coles through a program of store transformation and hefty price competition.

Instead the board went with O’Brien and his plan to establish the Masters chain of home improvement stores. Foran quit shortly after.

Four years later Masters was losing $600 million a year, had eaten up $2 billion of Woolworths capital and O’Brien was out of a job.

Foran was by then running the entire US operation of retailing giant Walmart, seeing off challenges from new market entrants and increasing sales by improving stores and logistics and cutting prices – a strategy that O’Brien’s successor, Greg Banducci, has adopted to recover market share.

There’s a similar example in the recent history of Suncorp. In 2015 Mr Milliner – now a candidate to replace Mr Harmer – was Suncorp’s CEO Personal Insurance and a strong contender for the top job. But the role went to an unlikely outsider, board member Michael Cameron, who had scanty insurance experience but an intriguing marketing idea.

Mr Milliner, who had spent 21 years at the group and was the driver of its “one company, many brands” strategy, resigned. He moved to IAG as COO and was made CEO of a united Australia division in July 2017.

At Suncorp, disappointing returns and the failure of the costly Marketplace strategy saw Mr Cameron leave after four years.

His replacement, Steve Johnston, has already moved to install two high-performance managers to bring more efficiency into the process. Expect more changes as they grapple with the complexities of a rapidly changing market.

We will leave alone the question whether Suncorp could have avoided its traumas had the board selected Mr Milliner. Today he is responsible for most of IAG’s strategic development priorities, which last week’s report defines as “simplify[ing] and optimis[ing] our core insurance business while creating future growth opportunities”.

Much of what he has achieved so far has been internal – building new teams, unravelling different cultures and systems, building technology and introducing responsive new products, managing some significant headcount reductions and forming a diverse group of managers.

Growing IAG’s core business will be vital because its dominant position in the local insurance market means its future growth – at least in personal lines – will be organic rather than acquisition-based.

No matter who takes IAG forward, it will have to be a very different sort of company from the insurer of today, relying on innovative products and an ability to understand and seize opportunities in a rapidly changing market.

That’s why the choice facing the IAG board is so weighty. It is blessed with two strong candidates who have clear-cut differences in experience and (possibly) vision – one finance, one operations.

But the directors must also consider how to cover the potential loss of one of IAG’s two key executives.