Diversity & Inclusion Through a Regulatory Lens
May 24, 2022
Why is D&I important?
It's time to think of your company's diversity and inclusion (D&I) efforts if you haven't done so recently. The importance and value of diversity and inclusion are not new but how regulators are evaluating firms and available data for the D&I quality within their business operations is evolving.
In the case of D&I, there are important benefits to the employee environment, maximizing potential and business successes in addition to contributing to a more equitable society. But preparing to meet a regulator’s expectations for any guidance, regulation, or law is best begun with answering the question; what is the purpose behind the regulator’s expectation? Usually, the answer can be boiled down to the safety and soundness of the organisation or consumer protection and services. The answer is that D&I impacts both.
Urged by the Central Bank of Ireland (CBI), risk officers and senior leaders over the last few years are analysing the impact that a lack of diversity has on an organisations overall risk profile. A strong D&I culture helps to avoid the problems of groupthink, uniformity, and overconfidence. While there are important societal benefits, mitigating a firm’s risk is quickly emerging as one of the top reasons to focus on diversity and inclusion within the operations and culture of a company. As evidence of the D&I risk mitigation benefits, for example, CBI is requiring Insurance organisations to account for the status of their diversity and inclusion practices and implement a strategy to improve them.
What are the risks involved?
Just as you would with other identified risks in your organisations, regular check-ins on key D&I elements within your firm should be monitored. Because CBI has assessed a sample of companies, we get to learn from their shortcomings and can take advantage of the insights it provides. Each firm’s specific risks will vary depending on its situation; however, drawing from the CBI findings, a firm should consider four significant areas in its risk evaluation.
- The quality of the D&I strategy is critical to mitigating the risks associated with a lack of D&I. If your firm doesn’t yet have clear D&I objectives and a plan with a timeline to implement them it’s time to change that.
- Integrate D&I as a priority throughout the business. The senior leaders of the organisation must be integrally involved in not only the development of the strategy but also the ongoing execution of the objectives. Isolating D&I-related positions from the rest of the firm’s strategic goals and decision-makers will increase your risk of a failed D&I strategy.
- Executive and Board succession planning must include D&I considerations. The risk of failing to improve D&I within the firm increases when the nominating committee does not have clear objectives and screening criteria that include recruiting diverse backgrounds.
- Reduce the gender pay gap. Unlike many aspects of D&I where it is difficult to measure the disparity, diverse representation and compensation at all staff levels can be calculated through the proper analysis. To create a diverse culture within the organisation, eliminating the disparity of benefits throughout all positions within the firm is one way to mitigate your risk of failing to improve D&I within the organisation.
A D&I strategy should be tailored to your firm’s situation, evaluating the diverse needs of your clients and how your products serve them should always be included in executive-level discussions. Your insurance company should reflect the diversity of the community it serves. In the regulatory and risk environment, we don’t always get warnings of risks that the insurance industry is failing to adequately mitigate and resolve. Evaluating and continuing to improve the D&I practices at your firm is an important component of your overall risk mitigation plan.