Parametric insurance for the diversity and inclusion market
Regular self-assessment of actionable corporate inclusion policies can reduce insurance costs.
Courage contagion seems to be the most relevant phrase to use when reviewing the trend that we see from employees at complex organizations that have a history of diversity and inclusion (D&I) complaints.
The usual scenario goes something like this: One employee speaks out about the disregard for their experience and expertise, and other employees start to rethink how they’ve been valued in that workplace. Over the past 20 years of corporate change management, we’ve seen this trend start to snowball into new types of internal corporate policy and financial risks.
D&I initiatives impact the bottom line
In 2020, insurance companies started to dig into their client’s corporate D&I practices, according to Reuters. The regulatory landscape is also changing as large states such as California mandate diversity on corporate boards. Even the NASDAQ is seeking to mandate board diversity for listed companies.
In the modern world, inclusion is a tangible risk of intangible assets. That means that over the past 45 years, S&P 500 companies with intangible assets have grown from 17% in 1975 to 90% in 2020. Plainly, companies in-aggregate claim that 90% of what makes them valuable is intangible. That’s a people premium.
Per our new reality, it is time for a more rigorous evaluation of intangible risks to our bottom line.
Beyond corporate crisis management
The corporate diversity market has been one of reactionary spending, based on what we usually consider corporate crisis management. The day after the killing of George Floyd, diversity consultants were overwhelmed with calls from mid-sized companies across the healthcare, manufacturing, advertising and technology sectors. These businesses couldn’t clearly explain what their cultural problem was, but they knew they had one.
The vague research in the D&I market suggests that diversity is an $8 billion spend by American corporations annually. However, as the author and scholar Pamela Newkirk explains in her book, “Diversity, Inc.: The Failed Promise of a Billion-Dollar Business,” minority groups haven’t benefited much from that investment as the corporate world has not created adequate evidence of growth in equity inclusion or belonging for the rate of increase in financial productivity.
Formal D&I initiatives have evolved and can be characterized by the following:
“Diversity is a reality.
Equity is a choice.
Inclusion is an act.
Belonging is a result.”
Inclusion and belonging are a target on a much larger, more tangible market risk. The $500-600 billion market of corporate turnover is regularly correlated to a lack of satisfaction in one’s corporate environment, and it is more expensive than the lawsuits and even the $300 Million market of non-litigation monetary benefits paid out from EEOC filings.
Still, 21st-century solutions are on their way. An evolution in D&I or DEI or just plainly Inclusion standards has been created by the International Organization for Standardization (ISO) and is serving as the new framework for structuring a new brand of inclusion insurance, based on parametric insurance that is designed to incentivize an execution of more internal corporate D&I policy with regular examination and execution.
To that end, D&I in 2021 is an act of reducing insurance premiums.
Reducing insurance costs
In short, regular self-assessment of actionable corporate inclusion policy reduces the cost of insurance policies. This new insurance means the act of inclusion has a tangible financial incentive. It is much broader than human resources lifecycle management and includes such risk domains as governance bodies, organizational leadership, designated responsibilities, individual responsibilities, the D&I framework, inclusive culture, product development, supplier diversity, and other stakeholders.
The last domain certainly isn’t the least relevant. If your organization is one that relies on an increasingly complex supply-chain of companies, you’ll want to understand what that third-party risk is to your intangible reputation and also to their ability to meet demand due to litigation and discrepancies that they are experiencing in the changing corporate landscape.
When diversity crises arise, the risk can be tied to one or more of the aforementioned domains. A fix-indemnity (or parametric) insurance is a new fixture in figuring out how to pay for either crisis management, which could mean staffing and consulting or capital management and could mean revenue loss or reduction in market capitalization.
In a world where trending on Twitter can risk multiple percentage points of in market cap or failing to win a request for proposal (RFP) due to reputation, parametric insurance can trigger provide a more dynamic type of risk management.
James Felton Keith is the CEO of Inclusion Score, host of the Inclusionism podcast, and co-editor of “The Anthem Ethics of Personal Data Collection.” Steven Schwartz (sschwartz@periculus.com) is CRO of Periculus, makers of digital solutions that help businesses assess, quantify, prioritize and manage risk.
The opinions expressed here are the authors’ own.
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