Regulatory News

Diversity in the Insurance Industry – Sylvia Cronin, Director of Insurance Supervision

13 March 2019 Speech

Sylvia Cronin

Remarks delivered to Association of International Life Offices (AILO) event on Diversity in the Insurance Industry

Good evening everyone. I would like to start by thanking AILO and in particular Dara Hurley for inviting me here to speak to you this evening. It is a pleasure to share this platform with Brid Horan and Brid Quigley. The value of diversity and inclusion (D&I) is well recognised today and represent long-held views of mine. I look forward to speaking about them this evening, as well as some actions the Central Bank of Ireland (the Central Bank) is taking from a supervisory perspective to enhance diversity.

Female diversity and career advancement

The Central Bank has strong representation of women at senior levels across the organisation and we outperform the financial services sector, the Irish public sector and many European peers, in terms of seniority and pay from a gender perspective.

However, this has not always been the case. Just over twenty years ago, there were no women in leadership roles in the Central Bank. Things began to change when, in 2001, a woman was appointed as the first female Head of Division. Our new Strategic Plan for 2019 -2021 continues this change and includes a commitment to ensure we have a positive culture reflecting our One Bank ethos of working together, our commitment to public service, and to D&I1.

While gender diversity is only one aspect of diversity, it is a very important one, and one that is relatively easy to measure. Studies have found that greater gender diversity can help organisations be more innovative2 and higher performing. A recent Credit Suisse report3, for example, found that companies where women made up at least 15 percent of senior managers had more than 50 percent higher profitability than those where female representation was less than 10 percent. Yet study after study finds that the pipeline of women narrows at each successive level of most organisations. While we see milestones in the number of women in corporate boardrooms and C-suites, most would agree that women’s progress into senior business leadership roles remains mixed. It is striking that women remain seriously under-represented at senior levels across financial services. I have previously spoken about the insurance sector having a significant gap to bridge to address D&I in the boardroom. This is both at the executive level and in the pipeline of talent needed to run the organisation.

Looking at diversity from a broader perspective than just gender, it encompasses different personalities (e.g. optimist versus pessimist), educational background, ethnicity, diversity of thought and more. These can all contribute to facilitating a variety of perspectives and more effective challenge.

A lack of diversity at senior management and board level can be an indicator of heightened behaviour and culture risks. Research shows gender diversity can affect the process and quality of decision-making4. It can guard against groupthink by bringing a heterogeneity of values, beliefs, and attitudes5. Groupthink contributed to the depth of the financial crisis internationally and in Ireland, and contributed to many of the conduct scandals that have subsequently emerged. A decade since the global financial crisis and across many Member States, the effects of it are still being unwound. And so, to try to prevent a repeat, we need competent people leading central banks and the financial sector alike.

IMF research has shown that if women’s employment equalled men’s, economies would be more resilient and economic growth would be higher; and if banks “increased the share of women in senior positions, the banking sector would be more stable too.”6 Also, when the UK Financial Services Authority conducted a review into the collapse of the Royal Bank of Scotland7, it identified significant overconfidence by board members prior to the financial crisis, and in particular in relation to the acquisition of ABN AMRO. The Dutch Central Bank8 has also identified a tendency towards consensus (prompting people to agree with the majority opinion) and optimism (an unwarranted sense of comfort) type behaviours in organisations.

While the exact proportions of optimal diversity are unknown, diversity of thought can only be achieved when there is an appropriate mix of people with different backgrounds, gender, age and skills. In the first instance, this needs to be achieved around the Board table and at executive management level.

Diversity and Inclusion Programmes in the Central Bank

So what were the drivers for implementing D&I programmes in the Central Bank? Firstly, there was a strong commitment to learn from the lessons of the financial crisis.

Secondly, there was a recognition of the many benefits which gender diversity can bring as evidenced by a growing body of research, consistent with our own experience. The research shows that having a diverse and inclusive workplace leads to:

  • Less group think, more challenge and better decision making.
  • More creative thinking and innovation.
  • An enhanced employer brand and reputation.
  • Attraction and retention of a wider talent pool.
  • Improved employee engagement because staff are valued and included.

Thirdly, as an organisation with a strong public sector ethos, the Central Bank wants to more closely reflect the society it serves.

In its role as regulator, the Central Bank has been forthright in saying that we expect regulated financial firms to place a greater focus on D&I so we believe we have a clear responsibility to hold ourselves to the standards we expects of others.

As a result, the Central Bank is committed to creating a diverse and inclusive workplace where all of us feel respected, valued and included; and where we can thrive to reach our full potential. Building on our strong foundations, we are committed to continually enhancing our approach to all dimensions of D&I. Some initiatives we have taken to date include:

  • Establishment of a D&I Steering Group led by the Deputy Governor, Prudential Regulation.
  • Establishment of four thriving employee-led networks.
  • Development of a clear vision for D&I.
  • Publication of our first Gender Pay Gap Report.
  • Ehancement of flexible working practices including the introduction of home-working.
  • Membership of 30% club and signatory of the Diversity Charter Ireland.
  • Proposed Conduct Standards for all staff in regulated firms.

In 2018, we published our first Gender Pay Gap Report as part of our commitment to both transparency and to becoming a more diverse and inclusive workplace9. Our report showed that, with an almost gender balanced workforce, we have good gender parity across the organisation. There are some differences in gender profiles across different grades. At 2.7% in favour of men, our pay gap is less than the national average of 14%, however, we believe there’s room for continued improvement10. Our second Gender Pay Gap Report will be published next month.

I firmly believe these achievements were only possible because we had total buy-in and commitment from the most senior staff in the organisation from the start. However, it was the hard work and the desire to succeed from staff across the whole organisation that made them a reality.

Central Bank’s initiatives for diversity in Financial Services

The key objective of the Central Bank’s cross-sectoral Fitness and Probity Regime is to ensure that regulated firms and individuals who work in these firms are committed to high standards of competence, integrity and honesty, and are held to account when they fall below these standards. This helps to build trust and confidence in the industry.

Firms, and their management, have the first line of responsibility under the Fitness and Probity Regime. They must ensure people subject to the regime are fit and proper, and so are competent and capable, honest, ethical and of integrity. Firms, and their management, must ensure their staff are fit and proper on an on-going basis. Where firms, and their management, fail in this regard, we will take appropriate action.

In March 2019, the Central Bank published its third annual report analysing the levels of diversity of the most senior appointments in the Irish financial services sector. It forms part of our commitment to measuring, monitoring and driving improvements in the levels of diversity within the financial services sector.

Analysis was conducted on over 4,500 applications for approval to occupy senior roles within regulated firms in Ireland (under the Fitness and Probity regime) in 2018.

At an overall level, there has been an improvement in the number of female applicants, rising from 22% 2017 to 24% 201811. Other high level findings from the review include:

  • The positive evolution in the banking sector, where 31% of applications were for women, compared to 25% in 2017 was not replicated in Insurance, where 22% of applications were for women, compared to 23% in 2017. Applications for board positions increased from 23% in 2017 to 36% in 2018 in the banking sector. The insurance industry increased, but not to the same extent, from 19% in 2017 to 20% in 2018.
  • In the insurance sector, the current male to female ratio is 4:1 at directorship level (22% female representation), whilst in chair roles the statistics are encouraging, with the male to female ratio at 2:1 (31% female representation).
  • The analysis continues to show a pronounced gender imbalance at board level and in revenue generating roles. In the insurance sector, in revenue generating roles, the male to female ratio is currently 6:1 at directorship level (15% female representation). For risk management/control roles, the male to female ratio is 4:1 (20% female representation) whilst in client facing roles the ratio is currently at 3:1 (23% female representation).

While some firms are starting to make progress, much more needs to be done to increase the diversity of experience, thought, background and attributes at senior levels to:

  • Reduce the likelihood of groupthink.
  • Reduce overconfidence and improve decision-making.
  • Enhance culture and improve risk management.
  • Increase the level of internal challenge in financial services firms and reduce excessive resistance to external challenge.

The Central Bank View

As well as broadening our D&I reviews on the insurance sector in 2019, we will be continuing to engage substantially with the five retail banks following on from the behaviour and culture review of 2018. Building on our earlier work on culture, the financial services sector can also expect further changes in how we supervise them. We will conduct more intrusive, targeted conduct supervision of those firms that pose the greatest potential harm to consumers, including robust challenge of board and executive management.

Diversity can only flourish in an environment that welcomes and nurtures it – an inclusive culture of the kind we want to build. We believe that stereotypes, unconscious bias and outdated social norms are the biggest barriers to inclusion and will work to mitigate this.

We are keeping up the pressure and it is essential that momentum is maintained throughout 2019. We expect regulated entities to look past gender and focus more on other aspects of diversity including socioeconomic and educational backgrounds, ethnicity and personality types to name but a few.

Closing

The evidence of what greater diversity can bring to the table – in the form of clear benefits for organisations – may actually be a greater driver of change. But it will, of course, take time for central banks and firms more broadly to become aware of this evidence, to accept it, and to implement change.

We are acutely conscious that diversity is a matter for each individual firm in the first instance, there is no one size fits all. It is the firms’ responsibility to guard against conduct risk and drive better outcomes for consumers and investors. In that respect, we expect firms to understand the risks faced by their consumers and investors and develop and embed comprehensive risk management frameworks to manage these risks effectively.

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1Central Bank of Ireland: Strategic Plan 2019 – 2021 (2019).

2 Dezső Cristian L and David Gaddis Ross: Does Female Representation in Top Management Improve Firm Performance? – A Panel Data Investigation, Strategic Management Journal 33, No. 9 (September 2012).

3 Credit Suisse: The CS Gender 3000: The Reward for Change (September 2016).

4 Hoogendoorn Sander, Hessel Oosterbeek and Mirjam van Praag: The Impact of Gender Diversity on the Performance of Business Teams: Evidence from a Field Experiment, Management Science Vol. 59, No. 7 (March 2013).

5 Levine David I, Jonathan S. Leonard and Laura Giuliano: Do Race, Age, and Gender Differences Affect Manager-Employee Relations? An Analysis of Quits, Dismissals, and Promotions at a Large Retail Firm, Working Paper #151-07 (2006)

6 Lagarde Christine: A Global Imperative – Empowering women is critical for the world’s economy and people, Finance & Development, Vol. 56, No. 1 (March 2019)

7 House of Commons Treasury Committee: The FSA’s report into the failure of RBS, Fifth Report of Session 2012–13 (October 2012)

8 De Nederlandsche Bank: Supervision of Behaviour and Culture – Foundations, practice and future developments (2015)

9 Central Bank of Ireland: Gender Pay Gap Report (2018).

10 Central Statistics Office: Women and Men in Ireland 2016 – Social Cohesion and Lifestyles (2017)

11 Central Bank of Ireland: Demographic analysis – Applications for Pre-Approval Controlled Functions (PCF) roles in regulated firms – 2018 (2019)



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