Acting Superintendent of Financial Services
"Requiring education on flood insurance and diversity and inclusion is not only timely, it is in the best interest of consumers," said Acting Superintendent Harris. "These additional education modules will help producers improve flood insurance availability for consumers and hold producers and adjusters accountable in implementing diversity and inclusion initiatives to be aware of potential bias and racial justice when servicing diverse consumers."
In addition to mandating flood insurance education for all property/casualty insurance producers, DFS is requiring enhanced flood insurance education for property/casualty insurance producers who sell flood insurance through the National Flood Insurance Program (NFIP). This enhanced requirement will ensure that consumers receive accurate NFIP quotes and are not inadvertently underinsured for flood damage. Furthermore, this requirement will educate producers on flood insurance coverage for dwellings in urban environments and clarify the role of adjusters to promptly resolve claims for consumers. As evidenced by the flooding caused by Tropical Depression Ida, it is more important than ever for insurance producers to understand the NFIP and consumers' flood insurance needs.
DFS's continuing education requirement in diversity, inclusion and the elimination of bias for producers and adjusters builds on DFS's action to promote diversity, equity, and inclusion in the insurance industry. This requirement will help producers and adjusters to better service a diverse population of consumers and be culturally sensitive and aware when interacting with consumers and members of the public.
These continuing education requirements are part of DFS's efforts to holistically address the effects of climate change on
"With the impact of climate change, it is now more important than ever that New Yorkers receive accurate information about flood insurance," said
"100 years storm are becoming more frequent due to climate change and we must all do our part to be resilient against these storms," said
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To: All New York Domestic and Foreign Insurance Companies
Re: Diversity and Corporate Governance
As Superintendent of the
Risk management, which is the bedrock of the safety and soundness of the insurance industry, goes to the heart of DFS's mandate as a financial regulator. DFS has broad statutory authority to ensure the financial stability of
Risk and corporate governance are inextricably linked, as boards and management are ultimately responsible for understanding and managing the risks that their companies are taking or facing. For this reason, corporate governance has been a key and growing focus of insurance regulators. This focus is evidenced by the adoption of the Corporate Governance Annual Disclosure Model Act and Regulation by the
Institutions and communities around the world have been uniquely tested by COVID-19, reminding us of the staggering human and financial costs of failing to address systemic risks. Overlapping crises-the pandemic, economic downturn, racial unrest and climate change-are ushering sweeping changes in our society and economy. These changes are challenging leaders in both business and government to prepare for and adapt to the "new normal." To remain competitive, companies must be able to think outside the box to manage evolving risks and identify new avenues for growth. Governance, including strong executive teams that reflect a diversity of skills, experiences and perspectives, never matters more than in times of great change, which are also times of great opportunity for the best minds in the public and private sectors to work together to reimagine, rebuild and renew.
We recognize the commitment of many insurance company CEOs to increase the representation of women, people of color and other underrepresented groups on their boards and management teams, and in their workforce generally. We also applaud the DEI initiatives announced by insurance trade groups, including the
While the insurance industry's public statements of support for diversity and DEI initiatives are important and necessary, our challenge is to move beyond words and good intentions to actions and real change. This circular letter is intended to support the industry's existing DEI efforts and to outline DFS's expectation that
Diversity as a Business Imperative
Research shows that DEI is good for companies' bottom lines.
According to a report published last year by McKinsey, which has been following the trajectories of hundreds of companies since 2014, the business case for DEI is stronger than ever./1 The report, which looked at over 1,000 companies in 15 countries, found that companies in the top quartile of ethnic and cultural diversity on their executive teams outperformed those in the fourth by 36% in terms of profitability in 2019./2 Similarly, in the case of gender diversity, companies in the top quartile were 25% more likely to experience above-average profitability than peer companies in the fourth quartile./3 Furthermore, the higher the representation of women and people of color, the greater the likelihood of outperformance./4 Because the correlation between executive team diversity and financial outperformance has strengthened over time, companies lagging on the diversity front are increasingly likely to suffer a performance penalty./5
Broader Customer Base
Insurance companies have a vested interest in hiring employees and building leadership teams that reflect the diversity of society and the consumers that they serve. A report published by
Diverse leadership teams innovate more and are better at solving problems. A 2018 study by
Better Risk Management
The ability to accurately assess information is essential to effectively managing risk. Studies have shown that teams comprised of people from diverse backgrounds focus more on the facts and process those facts more carefully./12 Diverse teams are more likely to remain objective and avoid entrenched ways of thinking that can blind them to key information and lead to errors in the decision-making process./13
According to recent research compiled by Catalyst, companies with gender-diverse boards have been found to be less likely to engage in controversial business practices such as fraud and earnings manipulation or to make overly risky investment decisions; commit fewer financial reporting mistakes; are more likely to demand higher-quality audits; and outperform non-diverse boards in environmental, social, and governance (ESG) activities./14 Studies have also shown that companies with diverse leadership teams are subject to less litigation risk. Gender-diverse management teams are associated with fewer operations-related lawsuits,/15 while the presence of three or more female and ethnic minority board members, who are more likely to identify with and provide support to employees of underrepresented groups, significantly reduces the likelihood of large-scale discrimination lawsuits./16
Prioritizing DEI in recruitment and hiring enables companies to tap into the full pool of available talent. Given that the
Diversity in the Insurance Industry
Diversity information for boards and management of
Across all industries, McKinsey reported last year that white men held 66% of all C-suite positions, compared to 19% for white women, 12% for men of color, and 3% for women of color./25 A strikingly similar picture emerges for boards of the largest
To prioritize the diversity of their boards and management, companies must also foster a diverse pipeline of future leaders. Leaders are made, not born, and it takes a long time to groom candidates for the C-suite. Recruiting, training and retaining high potential individuals reflecting a diversity of experiences and backgrounds, including as a result of their race, ethnicity or gender, is critical for organizations committed to increasing diversity at the top. Equally important is to ensure that promising executives acquire the necessary experiences to be considered for the most senior positions in a company. For example, one reason given for the dearth of women and people of color in CEO ranks is that so few of them are given opportunities to oversee a business division or unit with profit-and-loss (P&L) responsibility, which is typically viewed as a prerequisite to running a company./27
It is too early to assess the economic impact of the pandemic on women and people of color in the
Investor and Government Actions
Given the business case for diversity, it is not surprising that increasing pressure is coming from investors and other financial groups as well as governments.
Since 2017, large institutional investors like
Taking it one step further, shareholder derivative lawsuits have been filed against the boards of several high-profile companies alleging that board members and other executives made material misstatements and omissions to investors about their companies' professed commitment to DEI, and breached their fiduciary duties by failing to implement their DEI programs into their boards and C-suites./35
Investors may also start to reward companies that make diversity a priority. For example, last month, the private equity firm
Last but not least, the Biden administration has made clear that diversity will be a priority.
DFS Expectations for New York-Regulated Insurers
For all the reasons outlined in this circular letter, DFS expects
DFS has evaluated different regulatory approaches to promote DEI in the insurance industry, including the imposition of quotas and the collection and disclosure of diversity data on a company-by-company basis. We have also had many informal conversations with insurers, trade groups and diversity experts to hear about the industry's commitment to increasing the diversity within its ranks and challenges faced by insurers in their efforts. We would like to recognize the contributions of the members of
Based on our research and outreach, we have determined that the best way for DFS to support the insurance industry's DEI efforts is by collecting and publishing data relating to the diversity of corporate boards and management. Data collection is essential to identify areas for improvement, set goals and measure progress toward those goals. Given the limited availability of insurance-specific diversity data, making that information public will allow companies to assess where they stand compared to their peers and, we hope, raise the bar for the entire industry. Transparency is a powerful catalyst for change.
Increasing the diversity of a company's leadership should not be a check-the-box exercise, where the company can claim success if it has a minimum number of diverse board members or executives. To be sure, one or two diverse board members is better than none, but that is neither the goal nor sufficient, particularly for a large board. The same is true for the C-suite. Rather, a company 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. DFS understands that insurers are not all starting from the same place in terms of the diversity of their leadership and workforce. Each company should assess where it stands, where it wants to go and how it will get there, taking into consideration its size and other relevant factors, with a focus on improvement over time.
As a first step, DFS will collect data from
Increasing the diversity of the leadership and workforce of insurers is a business and corporate governance imperative that will make the insurance industry stronger and more resilient. We commend the companies that have already taken meaningful steps to promote diversity within their ranks, and we look forward to supporting others just getting started. In response to feedback from industry participants, DFS will organize a webinar focused on DEI best practices and addressing specific issues that companies have encountered in their diversity efforts.
Please direct questions regarding this circular letter to [email protected].
View footnotes at: https://www.dfs.ny.gov/industry_guidance/circular_letters/cl2021_05