Looking back to look forward
George Floyd. Kicking over the statues. Reclaim the streets. Plenty has happened over the last year to propel Diversity & Inclusion ("D&I") to the top of the agenda in society. But how will that translate into our industry as we look to the future? And why does it matter to the insurance sector as a whole?
The Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016 came into effect from 1 March 2017. The FCA's Disclosure Guidance and Transparency Rules ("DTR") also came into effect at the same time.
DTR 7.2.8R provides that a listed company’s corporate governance statement must include a description of:
- The diversity policy for the board, including age, gender, educational and professional background,
- The objectives of the policy,
- How the policy has been implemented, and
- The results in the relevant reporting period.
If a company does not have a diversity policy, then it must explain why that is the case.
In January of 2021 Georgina Philippou, Senior Adviser to the FCA on Public Sector Equality Duty, gave a speech at the Ethnic Diversity in The City and Corporate UK Summit.
The highlights were:
- Financial services generally are not diverse and that is not good for anyone. But it is also important to remember that diversity is one thing and inclusion is another; without an inclusive culture, the value of diversity, when achieved, will not be realised.
- As the FCA, they want to see a healthy financial services industry; they want to mainstream diversity and inclusion into all of their regulatory processes.
- The responsibility for creating and maintaining more ethnically diverse and inclusive cultures in the financial service industry sits with everyone.
So, apart from the requirements to do so, why else should businesses seek to achieve a more diverse organisation and instil a culture of inclusivity?
1. It's the right thing to do.
Candidates that might not otherwise have thought about applying will be encouraged to do so if they see the organisation has committed to D&I. That means that the business increases its pool of possible talent. Having applicants from differing backgrounds will lead to fresh thinking and new ideas – reducing the possibility of "groupthink" can only be a good thing.
In addition, widening the hive mind of a team or business should result in better advice to clients and new approaches to problem solving. As staff feel valued and included that will lead to a lower rate of attrition. The average cost of recruitment for a new employee in the UK is £3,000 (Glassdoor 2020).
2. Competition
Clients are beginning to put pressure on suppliers. For example, Coca-Cola is updating its outside counsel guidelines to require that the US law firms it uses take concrete steps toward promoting diversity within their ranks.
Novartis, the global pharma company is taking it one step further. If a law firm does not meet its agreed-upon diverse staffing commitment for a particular matter, Novartis will withhold 15% of the total amount billed over the life of that specific matter.
Some forecasters predict that Coca-Cola's policy will cross the Atlantic within 36 months. How soon before other organisations adopt similar policies to those of Coca-Cola and Novartis? And how soon before it spreads to other suppliers such as insurers?
Any organisation that is ahead of the curve on this will have an immediate business advantage over its rivals.
3. The Bottom Line
UK ethnic minority groups have a spending power of £300 billion a year, and even though the LGBT population is not as big, with estimates ranging from 1.2 million to 3.6 million people it is clear the addressable market has significant potential.
Internally, businesses are beginning to realise that apart from it just being the right thing to do by their people, there are significant business advantages to being inclusive and diverse.
Research from organisations such as the Harvard Business Review, McKinsey, KPMG and Forbes, has corroborated the idea that diversity can have a positive impact on a company's bottom line. The most diverse companies are now more likely than ever to outperform less diverse peers on profitability.
Companies with leadership in the top quartile for gender diversity are 25% more likely to experience above average profitability. Ethnic diversity makes it 36% more likely.
It has been reported that increasing gender diversity by just one percent will boost an organisation's bottom line by three. In addition, if there is just a one percent rise in race equality, it can increase revenue by nine percent.
Conclusion
Greater and greater transparency will be required of organisations as to their "culture". Does the organisation have an inclusive and respectful culture? Are its values those that a potential client would want to be seen to be endorsing by choosing that organisation as a supplier/partner? These are questions that will gain increasing traction in the coming years. Businesses should be alive to this and be ready to respond positively when they are put to them.
Read our full report 'Looking Ahead in the Insurance Sector'.
