Diversity Risk in Regulated Companies

Updated: Aug 27

A paper by Karen Graves & Adam Tobias.


The context of this paper lies in the March 2020 letter from the Bank of England’s Prudential Regulation Authority, sent to all regulated insurance firms outlining their expectations with regard to the diversity of the boards of these organisations. Specifically, the letter noted ‘ firms are required to engage a broad set of qualities and competencies when recruiting to the management/governing body and for this purpose put in place a policy to promote diversity of the management body’.


The PRA felt it necessary to remind insurers that failure to put effective diversity plans in place and increase the diversity of their boards would present a significant regulatory risk to these organisations. To meet the PRA requirements Chairs, including Chairs of Nominations Committees, have been brought into the mix as they are now the owners of these new responsibilities.


This presents an issue for insurers. Whilst there is a need to improve the diversity of insurer’s boards, and also across their businesses, there are a number of challenges at play.

First, what does diversity actually mean in this context? Addressing the issue of a definition of diversity has long been a consideration for all organisations, regardless of sector. The Equality Act 2010 outlines 9 protected characteristics, and it is unlawful for any person or organisation to discriminate against anyone on the basis of these characteristics. Often these characteristics (gender, sexual orientation, marriage and civil partnership, race and ethnicity, gender reassignment, pregnancy and maternity, age, disability, and religion) are taken to define diversity in the workplace.


However, the PRA gives no specific guidance on its definition of diversity beyond a casual mention of gender. It is generally accepted that women remain underrepresented in the upper echelons of the insurance industry. Thankfully there has been some positive movement recently, although one could argue this change has only really come about because of the spotlight of Gender Pay Gap Reporting. Other forms of diversity remain underrepresented, and significant effort is required to start to address the balance.

The second issue is how do organisations identify and nurture diverse talent? There is no silver bullet. Many argue that there are simply too few qualified individuals from diverse backgrounds to satisfy the PRA’s requirements for diverse boards. One solution is for the industry to take a hard look at its recruitment procedures from the ground up. Unless they start to hire and train diverse talent at the start of their careers, this problem at board level will remain for the foreseeable future. And further, these firms need to look closely at progressing talented diverse individuals as quickly as is practical, refocussing and utilising the diverse range of talent that already exists in insurance companies but not yet fully recognised and supported. This is going to take time, but action must start to be taken now. Insurers also need to look at talented individuals outside of the industry, but how practical and realistic is this? The insurance industry’s lack of diversity is not unique, and they face considerable competition for talent from every industry.

How do organisations foster a culture change to embrace diversity of thought or ‘cognitive diversity’ at its top table? Not only are insurers facing a growing regulatory risk by not embracing diversity, they are also facing reputational risk and innovation risk factors. Gender Pay Gap Reporting requirements, in place since 2017, requiring any organisation with more than 250 to publish their gender pay gap data have undoubtably been a blunt but important tool in pushing forward gender equality. There is a high degree of likelihood that further pay gap reporting is on its way, most likely Race & Ethnicity Reporting, followed by Disability Reporting. These reporting requirements will demonstrate, in our opinion, a very significant degree of inequality, and insurers that do not act now will be highlighted poorly.


Innovation risk, or rather, the risk of not being innovative enough, is a problem most large organisations are facing. We are in the midst of the fourth industrial revolution; digitisation and artificial intelligence are placing increasing strain on legacy businesses that do not generate enough innovation revenue (i.e. new products and services that are less than three years old). In the insurance industry the threat to legacy insurers from insurtech businesses, delivering best products and services, faster and more cost effectively are simply going to increase. By hiring diverse thinkers, to help mitigate the dangers of ‘groupthink’, insurers are more likely to identify their own innovative products and services. Hiring in the same way they always have, from the same pool of talent, just compounds the lack of innovation and increases these risks exponentially.

Is there any solutions?


So, what solutions are available? Inventum Consulting is an award-winning inclusion, diversity and leadership consultancy. Building on our extensive track record of delivering solutions to the insurance industry, we have teamed up with Karen Graves, a highly regarded insurance leader, to deliver a range of services to help tackle these inclusion and diversity risk challenges.

Working with the leadership of regulated insurance firms, we help identify and mitigate the regulatory, reputation and innovation risks associated with a lack of inclusion and diversity. Our range of services are delivered to meet the unique challenges insurance firms face and are always bespoke to the specific needs of individual organisations.


Our services:

  • Regulatory consulting – support the development of appropriate governance frameworks, conduct inclusion audits to assess needs and effectiveness and provide focussed regulatory insight to ensure your business benefits from a unified inclusion strategy

  • Inclusion and diversity strategy – designing an inclusion and diversity strategy, with a roadmap of activities to drive forward a culture of inclusion that is sustainable and effective

  • Diverse talent acquisition – identifying blockages in your recruitment process, and reaching underrepresented talent, providing you with diverse and inclusive shortlists for vacancies

  • Inclusive leadership coaching– supporting your leaders to develop inclusive management skills that encourage inclusion and foster a culture of innovation and creativity

  • Inclusion and diversity training – supporting the wider workforce to enhance their knowledge and skills, and support the adoption of an inclusive workplace

  • Communications – helping to communicate your approach to inclusion and diversity internally and externally, supporting and enhancing your reputation

Who Are We?

Karen Graves is an experienced and proven Market professional at Executive Director and NED level, with specific experience and insight regarding regulatory and corporate governance matters, new start-ups and business change across multiple locations. She is an executive sponsor for diversity initiatives and a PRA / FCA / Luxembourg CA approved person.


Karen has worked in the Lloyd’s and London Market for over 30 years, starting her career in the compliance arena, moving on to a COO and then MD role within the Lloyd’s Market for an established Lloyd’s Managing Agency. She is the Senior Independent Director for the USAA Limited and USAA SA and a Trustee of the CII’s Education & Training Trust. Her career includes working in the reinsurance and insurance sector, and has direct experience in operational leadership, oversight and coordination of EMEA offices, Internal Controls, Operational Risk Management, Regulatory Relationships, Property Affairs, Compliance and working with business divisions on new projects from a strategic perspective. Her experience includes establishing offices overseas, taking part in EU College of Supervisors meetings and rolling out compliance processes, with a particular emphasis on corporate governance.


Karen is Chair of the Independent Women in Insurance Committee (iWIN); a Freeman of the City of London and an active member of the Worshipful Company of Insurers; 2018 IBUK Woman of Influence; a PRA/FCA/CA Approved Person; a leader of diversity initiatives; an ally of the LINK LGBT initiative and as a supporter of educational diversity a Trustee of the CII’s Education and Training Trust. Karen is also a qualified leadership coach.


Adam Tobias is co-founder of Inventum Consulting, part of the Inventum Group, renowned leaders in inclusive talent and leadership solutions.


Inventum has a track record in helping regulated insurance firms to adopt inclusion and diversity as a strategic imperative. Our highly experienced consultants deliver insights from across the corporate world, impacting talent acquisition, innovation and ideation, and workforce engagement and performance.




Contact:

To learn more about how we can help you meet these diversity and regulatory challenges, email Adam Tobias adam@inventumsearch.com to set up a call or video meeting.


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