On March 16, 2021, the New York Department of Financial Services issued Circular Letter No. 5 “Diversity and Corporate Governance,” which notifies all insurers of the need for increased prioritization of diversity in C-Suite leadership and corporate governance more generally.
The Circular Letter is a call to all insurers to prioritize, as part of their strategic mission, Diversity, Equity and Inclusion (“DEI”) within their corporate ranks. Developing an inclusive and diverse C-Suite and corporate culture is essential from a business prospective—not only do “diverse teams perform better, innovate more, and are more effective at managing risks,” but executive teams organized to maximize DEI offer varied perspectives that uniquely situate them to better handle the “sweeping changes in our society and economy” brought about by “the pandemic, economic downturn, racial unrest and climate change.”
Superintendent Linda Lacewell notes that, although many insurers have recently sought to “increase the representation of women, people of color and other underrepresented groups on their boards and management teams, and in their workforce generally,” further increases in DEI are critical because they invariably lead to increased profitability, a broader customer base, increased innovation, better risk management, and more satisfaction among an organization’s employees.
Given the obvious business case for diversity, it is not surprising that industry in general is seeing increased pressure from investors and other financial groups to further develop corporate DEI identity. Last year Goldman Sachs announced that it will only underwrite initial public offerings for private companies that have at least two diverse board members. Similarly, the Nasdaq recently filed a proposal with the U.S. Securities and Exchange Commission that would require listed companies to delist if they did not maintain certain diversity standards with respect to their boards.
To focus its DEI efforts, the Department evaluated multiple approaches through informal conversations with insurers, trade groups and DEI experts, and had even previously considered the imposition of quotas on insurers, but ultimately concluded that insurers must begin collecting and publishing data relating to diversity of their corporate boards and management. This is essential to identify areas for improvement, to set goals, and to progress toward achieving those goals.
The Department will initiate its DEI efforts by collecting data relating to gender, racial and ethnic composition of the board and management of all New York domestic and foreign insurers with more than $100 million in annual New York premiums as of December 31, 2019 and December 31, 2020. The data collection will also include DEI information about board tenure and key board and senior management roles. The expectation is that this data will be collected over this coming summer and be published in the fall of 2021. The data will be presented on an aggregate basis based on the type of insurer and other relevant factors as determined by the Department. In addition, starting in 2022, the Department will include questions related to insurer DEI efforts in its examinations of insurers operating in New York.
The Department stresses that increasing the diversity of a company’s leadership should not be a “check-the-box exercise,” and all insurers should “strive to have a board and management team that benefit from the broadest diversity of skills, experiences and perspectives possible, including based on a person’s gender, race or ethnicity.” The Department is also planning to organize an industry webinar focusing on insurer DEI best practices, which will provide insurers an opportunity to address specific questions in connection with their diversity efforts.
We will continue to monitor these efforts by the Department and will provide updates accordingly.
The Circular Letter can be found at the following link:
https://www.dfs.ny.gov/industry_guidance/circular_letters/cl2021_05
