at Eversheds Sutherland
On 29 July 2020, the CBI issued a report (the “Report”) on its thematic review of diversity & inclusion (“D&I”) in insurance firms.
The CBI concluded that there was a lack of sufficient progress on improving D&I in the 11 insurance companies it reviewed and that this gave rise to regulatory risks that needed to be addressed. It has issued Risk Mitigation Programmes (“RMPs”) to the affected insurance companies, requiring them to address the issues identified by the CBI.
This Report further emphasises the importance the CBI attaches to the need for improving D&I in regulated firms in Ireland, an issue it highlighted in its July 2018 ‘Report on Behaviour and Culture of the Irish Retail Banks’. The Report also notes that it is considering a review of D&I in other regulated financial services sectors outside of banking and insurance.
The regulatory significance of D&I
With regard to diversity, the Report notes that increased diversity helps to create independent opinions, mitigate the risks of group-think and conformity, and protect against over-confidence, resulting in more effective decision making. The Report quotes the following from Christine Lagarde, current President of the European Central Bank:
“First, greater diversity always sharpens thinking, reducing the potential for groupthink. Second, this diversity also leads to more prudence, with less of the reckless decision-making that provoked the [financial] crisis. Our own research bears this out— a higher share of women on the boards of banks and financial supervision agencies is associated with greater stability”.
The Report also states that, to harness the benefits of diversity, it must be supported by an inclusive culture that facilitates and supports the contribution of all individuals, irrespective of their differences, so that diverse views are shared. An inclusive environment may help promote internal challenge of the status quo and create a safe environment for people to speak up, with the goal of encouraging critical challenge at all levels of the organisation and an openness to change where there is a ‘no blame’ culture. This, in turn, may drive more effective decision-making and improve governance and risk management within the firm.
The CBI’s findings
The Report concludes that:
- Many of the insurance companies did not have a D&I strategy and, even where a D&I strategy was in place, it was not clear how this strategy was aligned to the overall strategic objectives of the company.
- Most firms are not sufficiently prioritising D&I. In particular, it was not frequently or actively discussed at Board or ExCo level. Also, firms that implemented D&I initiatives were not typically tracking their effectiveness.
- There is a lack of adequate consideration of diversity for the purposes of Board and ExCo level appointments and succession planning. The Report notes that, during the period 2012-2018, for example, only 21% of applicants for the most senior roles in insurance firms were female (increasing from 12% in 2012 to 31% in 2018).
- There is clear evidence of a significant gender pay gap in most firms. The CBI found, for example, that for average fixed remuneration over a total of 50 assessed grades, males earned more than females at the same grade in 72% of cases.
CBI’s expectations of firms
The Report makes clear that it expects firms to:
- ensure both diversity and inclusion are strategic priorities aligned to their overall business objectives;
- ensure meaningful discussion and challenge at board and senior executive level on culture, policies, practices and initiatives that seek to deliver D&I at all levels within the firm;
- consider a range of measures of D&I in all its forms, while also considering what is required to identify and mitigate relevant risk factors;
- agree and implement a D&I plan that includes clear objectives, stretch measures and implementation targets;
- review the plan at least annually at board level while ensuring that its effectiveness is monitored against suitably ambitious outcomes and measurable goals, and regularly reported to the board and senior executives; and
- ensure D&I is embedded in the firm’s approach to resourcing, succession planning and the recruitment process at all levels.