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New NAAIA Report Focuses on Next Steps for DEI in the Insurance Industry

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As Black History Month kicks off, February presents a great opportunity to not only celebrate the history and accomplishments of African Americans, but also to meaningfully assess and advance diversity, equity and inclusion measures with the goal of ensuring lasting change rather than lip service. To that end, the National African American Insurance Association (NAAIA) recently updated its research on its members’ experiences and challenges in the insurance industry, releasing the new study The Next Steps on the Journey: Has Anything Changed? The new research updates NAAIA’s 2018 report The Journey of African American Insurance Professionals, evaluating what progress has or has not been made over the past five years, particularly given the increasing focus on DEI programs and, specifically, many companies’ discussions of DEI efforts after the murder of George Floyd brought the Black Lives Matter movement to the fore.

“On one hand, there is a prevailing sense from Blacks/African Americans in the sector that companies are seeking to find credible and practical ways to solve longstanding inequities,” said Omari Jahi Aarons, executive director and chief operating officer at NAAIA. “However, the report highlights that many of these actions are falling short because they are not addressing inequities at the foundational level.”

For example, most survey respondents agreed that their organizations were committed to diversity (60%) and inclusion (61%), and nearly half felt that their organizations were committed to advancing equity (43%) and equality (48%). Nevertheless, 84% of respondents said they continue to encounter obstacles in their career progress compared to other under-represented groups because of either conscious or unconscious racial bias.

Respondents shared several key changes that risk and insurance organizations can make to “more fully achieve and prioritize diversity, equity and inclusion,” such as enhancing recruitment and talent identification initiatives and placing greater focus on recruiting from HBCUs and institutions with substantially diverse student populations, promoting African Americans to officer-level roles, increasing board diversity across racial and gender identities, addressing compensation and pay inequities, increasing pay transparency, offering more mentorship opportunities and extending support through executive coaches.

To support the advancement, networking and development of African American risk practitioners, the report offers a number of recommendations “to catalyze conversation and action” for risk and insurance professionals, including:

Recommendations for Black/African-American risk and insurance professionals:

  • Demonstrate success: Attracting talent to the risk and insurance industry will depend upon the full engagement of Black/African-American insurance professionals who can illuminate under-informed or unaware communities and constituencies about the opportunities in the industry.
  • Seek and offer mentoring: Throughout the research, mentoring was mentioned as a critical factor for career success and satisfaction. Individual professionals can articulate their respective needs for mentoring and can provide mentoring to, and with, each other.
  • Get and provide exposure: Getting exposure and gathering knowledge about the industry can be a powerful, effective remedy to longstanding barriers for underrepresented groups. Individuals can consider their own social networks to foster partnerships to strengthen industry exposure, increase validity of career opportunities and encourage young people to view risk and insurance as a viable and rewarding career path.
  • Advocate for self and for others: Individual professionals must find ways to take charge of their careers, connect and exchange ideas with other professionals. The research revealed that most participants did not belong to any industry-related associations, which could hinder career progress and success. Expanding networks and deepening ties to the industry should be a top priority for every individual, and membership costs should be viewed as an investment in personal professional development. Facilitated introductions for employers and NAAIA to Black/African-American organizations can also foster engagement and collaboration.

While many organizations have introduced DEI programs and proclaimed support for African American employees since the Black Lives Matter movement took root, the survey found many of these moves lacking in actual impact thus far. “Respondents identified the tragic murder of George Floyd and many other Blacks/African Americans and People of Color as the catalyst for centering conversations on race and the risk and insurance industry has responded with a host of new initiatives to address disparities,” NAAIA noted. “Respondents reported increased exposure from initiatives specifically DEI-related training (57%), support for employee resource groups (35%) and mentorship programs (21%). However, these initiatives have not translated to career advancement.”

To help employers improve their DEI efforts, the report also offered the following recommendations:

Recommendations for employers:

  • Avoid performative actions: DEI-driven activities and training notably emerged in response to the events of the last few years. However, many organizations are “checking the box” by undertaking noticeable, but not meaningful, initiatives. A thoughtful and careful review of DEI initiatives is an important first step to ensuring that they are not merely performative, requiring courageous conversations by several stakeholders about the purpose and intent of each activity or program.
  • Turn barriers into gateways: With intention, employers should ensure that there are measurable DEI goals and outcomes visible at all levels of the organization. Measurements can include internal or third-party pay equity and workload balance analyses or tying compensation to the successful implementation of DEI initiatives, especially at middle managerial levels.
  • Use leverage: More employers could leverage the vast networks of employees and employee resource group participants for recruitment and to influence internal mobility, as well as to increase levels of employee engagement. Often, employers underestimate the power of personal connections and references within minority communities, foregoing opportunities to build awareness and enhance their brands both internally within their organizations and externally.
  • Provide meaningful, substantial support: Supporting NAAIA local chapters through sponsorship, mentoring and partnerships and cultivating multiyear partnerships with Black/African-American community professional, civic and youth organizations can lift a company’s profile. More importantly, these types of partnerships also allow for employers to create greater access to internal subject matter experts to communities that are underserved on relevant macro business and professional development topics (e.g., financial literacy, wealth creation or cybersecurity).
  • Connect human resources, senior executives and ERG leaders: Several respondents noted that beyond nominally sponsoring an ERG, many executives were not directly involved in planning or activities. Most of the ERGs are organized and driven by employee volunteers, which often renders them less effective because of time and work constraints. If human resources, senior executives and ERG leaders can convene to discuss mission, alignment with company goals and resource allocations, there is a greater likelihood of continuous progress.

For more of the report’s findings and recommendations, click here to read NAAIA’s The Next Steps of the Journey: Has Anything Changed?

Inflation Considerations for Risk Managers and Insurance Buyers

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According to Beazley’s recent Risk & Resilience Geopolitical Report, inflation is a key area of concern for business leaders and they expect economic uncertainty to remain high through to the end of this year. High inflation impacts multiple aspects of corporate decision making, from the changing value of stock to rising employee wages and cost of borrowing. It is interesting to note that worries about inflation differ internationally; in the US, 42% of companies rated it their biggest concern, while only 33% of business leaders in the UK had it at the top of their list. Even more striking is the lack of perceived resilience to inflationary pressure, with 65% of business leaders in the U.S. and 55% globally feeling unprepared to meet the challenge.

US business leaders’ concerns about the impending impacts of inflation are justified, as financial market volatility and losses are currently driving the greatest run-up in prices that the U.S. has seen in four decades. The S&P 500 officially entered a bear market and is down more than 20% since the beginning of the year, and the prevailing sentiment in the U.S. is an expectation that inflation is only going to get worse. U.S. retail sales fell in May as supply chain challenges drove a decrease in major purchases like vehicles, and record high gas prices pulled spending away from other goods. The Federal Reserve raised interest rates to try and reduce inflation, but businesses face a long road ahead as rising prices for everything from groceries to housing influence consumers’ buying power and economic confidence for the foreseeable future.

Inflation’s Impact on the Insurance Market

In light of current economic conditions, the directors and officers (D&O) insurance market is now facing several notable inflationary risks. Inflation and supply chain constraints led to higher costs of goods sold, including both raw materials and transportation/freight costs. If a company cannot or is not willing to pass the price on to the consumer, the margins will be impacted, leading to softer financial results. At the same time, as consumer prices increase due to inflation, companies (especially those in the retail and hospitality industries) may face a market with significantly less discretionary spending, leading to lower volume sales or lower sales overall. 

Amid these challenges, there are several signs pointing to a potential U.S. and, likely, global recession. While unemployment rates have been improving since the all-time highs during the peak of COVID, analysts warn of future mass layoffs. With high unemployment and higher costs, this also poses a risk to employment practices liability (EPL) insurers. Workers may look to recover lost wages through whatever means available, including bringing suits against their employer. A strong EPL policy and relationship with insurance carrier and broker can help during this time where unemployment may swing back the other way. 

Wage and labor inflation also remain a challenge in a tight (though softening) labor market as companies either cannot fully staff their businesses or are spending more to attract and retain talent. Both impact the bottom line. The insurance industry has already seen several supply chain and inflation-driven Security Class Action claims. Various companies have made claims as a result of challenged financials in the wake of strong inflationary and supply chain/labor impact. These were driven by everything from a shortage of staff to deal with consumer demand to slowed production as a result of supply chain constraints, and these cases are just the beginning.

In other lines of business, as inflation continues to rise and products become harder to get, we can expect to see increased crime activity, with higher value attributed to stolen goods due to shortages and inflation encouraging more employee theft. In the cyber market, larger ransom payouts are becoming regular and the costs to buy insurance, negotiate ransomware, and rebuild after a breach are all rising, but the need for more experts is also likely to present challenges as wage inflation rises.

Claims teams are seeing social inflation across most lines of business today, most prominently in bodily injury, wrongful death, EPL, and sexual abuse/molestation liability. This trend is driven largely by the plaintiff’s bar, which has been increasingly emboldened to tap into consumer unrest about everything that is happening in the world today. Jurors’ distrust of larger corporations and their empathy for impacted individuals are increasingly factors that the plaintiff’s bar is leveraging to return higher settlements.  

Increasing Complexity of Corporate Insurance Buying

The conflict in Ukraine was already an inflection point for the insurance markets, with hardening rates and capacity changes anticipated in some specific classes as a result. Now, the wider impact of inflationary pressure is likely to push costs (and, in turn, premiums) higher across all classes. This is bad news for insurers, and ultimately even worse news for the business owners who are insurance buyers.

Inflation brings uncertainty and demonstrates the increasing criticality of insurance in certain key areas. For those trading internationally, trade credit insurance becomes essential. With rising business pressure, D&O and EPL insurance-related risks also rise. Business interruption also becomes more likely in a world where energy supply and supply chains are both less certain. As pricing goes up, whether due to supply chain constraints or wage increases, this cannot help but impact companies’ overall performance, leaving them open to potential litigation from shareholders. In a land of rising costs and rising risks, many business owners may consider protecting their business operations as a continued priority, no matter what happens to cost.

Key Action Steps for Risk Managers

One of the most important things that risk managers can be doing in this landscape is proactively seeking to understand what is happening in the world. This includes considering not only the risks that are present, but also what is happening as a result of the inflation and social inflation trends we are seeing—namely higher costs and more pressure from the plaintiff’s bar.

With this understanding in hand, risk managers are then well-advised to call upon trusted experts, including brokers, insurance partners and third-party vendors who are available to test systems and table-top strategies. The priority should always be to find the best vendors and build long-standing relationships with them. This is the time to leverage that trust.

It is essential to be proactive when it comes to risk management. Do not wait for a crisis to come in the door and then behave reactively. Rather, prepare yourself with education and resources and then, after identifying risks unique to your business, proactively seek to mitigate them.

As inflationary risks look to be with us for the immediate future, it is critical for organizations to have a plan. Use your enterprise risk management strategies to develop responses to potential economic and geopolitical events. Communicate regularly and conservatively with shareholders. Consider diversifying your supply chain, as working with different suppliers can add to the confidence level of meeting demand levels. It is also important for businesses to demonstrate empathy for the suffering and hardships that employees and customers may be experiencing.

Many of today’s senior business leadership have not dealt with inflation, unlike the previous generation of leaders who endured double-digit inflation in the 1970s and early 1980s. Use data and rely on the experience of management that survived the Great Recession of 2008 to 2011 to help navigate these new concerns. And of course, work with your carrier partner to ensure that you are properly covered for the road ahead. If COVID-19 has taught us anything, it is that companies must be prepared and plan for the unexpected. This adage will continue to prove true as we weather the coming period of inflation-driven challenges.

Earth Day 2020: What Does Climate Change Mean for Risk Management?

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On Earth Day 2020, risk professionals can reflect on ways to protect both the environment and their businesses. Worldwide, climate change poses countless risks, including increasing the frequency and magnitude of natural disasters, reducing access to resources and disrupting supply chains.

To celebrate Earth Day and help risk management professionals address environmental risks and climate change, here is a roundup of some of our coverage from the past year about these critical topics:

From Risk Management Magazine:

Aligning Sustainability and Risk Management: A collaborative approach between sustainability and ERM can best drive real change.

Taking Action on Climate Change: As the potentially devastating impacts of climate change become clear, risk managers must assess the resulting risk exposures and ­opportunities for their companies.

Insurers Divest from Coal Over Climate Risks: Insurers are pulling coverage and investments related to the mining and use of coal.

Will Climate Change Impact Reinsurance Rates?: As natural disaster losses mount, the reinsurance response could spur action on climate change.

Getting Serious About ESG Risks: Investors are increasingly scrutinizing environmental, social and governance activity.

From the Risk Management Monitor blog:

Venice Sees Near-Record Flooding: The city of Venice, Italy, faced the worst flooding of its famous canals since the devastating floods of 1966, suffering major economic impacts.

Catastrophic Floods More Frequent in 2019: Major flooding has become a normal occurrence for many regions of the country, and by all indications, it is becoming worse each year.

Global Heat Waves Signal Climate Risks: The pattern of dangerous heat waves has become a yearly occurrence across the globe. 

Texas Study Shows Business Impact of Major Storms: The large storms hitting the coast of Texas are having serious impacts on industries across the state and country.

Limit Organizational Exposure During the Polar Vortex: Tips for protecting businesses during the frigid weather phenomenon.

The Risky ‘Business of Art’ Explored at Observer Event

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From left: Massimo Sterpi, Elena Zavelev, Anne Bracegirdle, Devin Finzer, Curt Bilby / Photo: Keith Sherman & Associates

NEW YORK—On May 21, the Observer’s inaugural “Business of Art Observed” event brought experts in art, insurance, risk management, tech and finance to the Roosevelt Hotel to discuss established and emerging risks facing the $50 billion art industry.

The “Insurance and Risk Management” session wasted no time exploring creative risk and claims management approaches to the various forms of potential damage to artwork. From transit to security to geopolitical risk, panelists agreed fine art coverage is not a paint-by-numbers process, and said the “framing of a claim” can facilitate a payment.

“Insurance companies get a bad reputation,” said Mary Pontillo, senior vice president and national fine art practice leader at DeWitt Stern. “But the higher-end, really good-quality insurance companies are looking for ways to pay claims. I think that’s where there are a lot of misconceptions.”

For example, she mentioned advising a client whose work was being kept on a yacht. While certain maritime and environmental risks such as humidity were not covered by the policy, she was able to demonstrate that ocean spray had been the source of the damage and successfully get the claim covered.

The session discussed modernizing risk management in the art market and how the industry should apply forensic due diligence to transactions and ensure they view all business activities through a lens of strategic risk. And with transparency cited as a continuous challenge, Dennis Wade, a senior partner at Wade Clark Mulcahy, LLP, who has handled international fine art matters, pointed out the importance of reputation risk when drafting a policy.

“Many policies also contain an exclusion for the dishonesty of the person to whom you deliver or entrust the goods,” Wade said. “So if you consign a work to a corrupt gallerist, there may be an exclusion in your policy and you may not be covered at all.”

The emergence of blockchain technology dominated discussion at another session, “Art Market 2.0: Using Art & Technology to Drive the Industry Forward.” According to panelists, authentication and secure transactions have risen to the top of their risk registers. New Art Academy Founder Elena Zavelev said blockchain’s ability to put individual faces on digital artwork has mostly solved the prior risk of unauthorized duplications, forgeries, and fraud. Zavelev and her co-panelists said blockchain may facilitate a long-term change in the way art is created, sold, curated and insured by improving the ability to track a work’s provenance.

Christie’s AVP Anne Bracegirdle said the masterstroke for streamlining the authentication process is to create a digital, industry-wide registry. Tokenizing original works, she said, would simplify the experience of buying, selling and trading. “If each piece had its own digital identity that would stay the same, no matter where it went, it would instantly provide secure provenance and prices,” Bracegirdle said. “There are companies like Consensus and Microsoft working to create distributed identity networks. The security within that could be applied to scale blockchain—regardless of which blockchain you’re interacting with. Digital identities would provide clients with access to all their consignments and their purchases in one consolidated space, which currently doesn’t exist.”

The evolution of art was also a hot topic during this session since what’s considered a “finished piece” is no longer just a physical canvas. Digital, virtual and even crypto-art may be in their relative infancy but these are gaining global popularity and could significantly influence the industry, said Devin Finzer, co-founder and CEO of OpenSea, a peer-to-peer marketplace for crypto collectibles, gaming items, and digital art.   

“[Owning digital products] has always been confined to a specific ecosystem, like event tickets to a ticketing site,” Finzer said. “Blockchain offers a new type of ownership for these digital assets and it’s exciting for digital art because you can own it in a variety of [digital forms]. Right now, we see the enthusiasm is from tech enthusiasts, but I think over time these ideas around digital ownership will cross over to a mainstream crowd who appreciate the art more than the technology.”