DEI in Supervisory Insurance - Executive Summary

Supervising DEI in insurance – Executive Summary In 2021, the International Association of Insurance Supervisors (IAIS) published astatementthat explained theimportance of diversity, equity and inclusion (DEI) considerations in insurance supervision. ItsApplication Paperon supervising diversity, equity and inclusion: the governance, risk management and culture perspective ICP 7 – Corporate governancerefers to the need for insurers to have a corporate governanceframework that provides for sound and prudent business management and oversight and protects ICP 8 – Risk management and internal controlsrefers to the need for insurers’ corporategovernance frameworks to include effective systems of risk management and internal controls. What is DEI? Diversityreflects the differences between people, including different knowledge, skills,experience, ways of thinking and demographic characteristics. The idea that such Equityinvolves seeking fairness for all by allocating resources and opportunities in away that recognises the different circumstances and needs of different groups of people. Inclusionrefers to a sense of belonging felt by all people within an organisation,regardless of their differences, and an absence of barriers, so that they can participate Why is DEI relevant to governance and risk management? The corporate governance standards set out in ICP 7 are supported by elements such as diverse boardcomposition, the exercise of independent judgment by board members, and objective and independentdecision-making within boards. Embedding DEI within an insurer can support these outcomes and strengthen Effective systems of risk management, as expected by ICP 8, must be able to take account of allreasonably foreseeable and material risks to which the insurer is exposed. Control functions need to have thenecessary authority and independence to be effective. By leading to a more diverse staff working together and The lack of sound DEI practices in an insurer may give rise to increased risks in the following areas: governance– weak internal challenge, poor decision-making, lack of innovation and increased riskof employee misconduct reputation– damage to public trust and investor confidence •staffing– difficulty attracting and retaining high-quality and diverse staff in competitive labourmarkets Warning signs for supervisors There are two sets of warning signs for supervisors that can indicate the need for increased engagement withan insurer on the topic of DEI. The first set relates to governance, risk management and corporate culture that •a lack ofchallengein board discussions and key decision-making processes, which could mean thatdiverse perspectives are not being considered•a corporate culture that is resistant to change, which could indicate groupthink The second set of warning signs indicates possible shortcomings in the way that an insurer hasembedded DEI. These include: •a dismissive attitude to DEI from management, a lack of a clear strategy to drive change, or unclearaccountability for embedding and promoting DEI at all levels of the organisation•the lack of an informed DEI strategy with sufficient data, a box-ticking approach to implementation, Supervisory actions to address DEI-related problems There are industry-wide actions and insurer-specific engagement that supervisors may pursue to address DEI-related issues they have identified. Those potential actions must be considered in the supervisor’s jurisdictional Industry-wide actions include: the use of soft powers, such as speeches, guidance, roundtables andpublic transparency, to open a dialogue on the role of DEI in supporting good governance, risk managementand corporate culture in insurers; the integration of DEI themes into supervisory approaches to those elements; Insurer-specific engagement may be pursued in tandem with industry-wide actions to communicatewith insurers in a more targeted way. Possible actions include discussions with boards to understand aninsurer’s DEI strategies, practices and outcomes and targeted reviews of an insurer’s approach through desk- This Executive Summary and related tutorials are also available inFSI Connect, the online learning tool of theBank for International Settlements.