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The Inclusion Insurance Incentive

previously published at Property & Casualty 360

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 & inclusion (D&I) complaints. The usual scenario goes: one employee speaks out about the disregard for their life experience’s influence on their work performance, and other employees start to rethink how they’ve been valued. 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.

It was well documented that in 2020 insurance companies started to dig into their client’s corporate D&I practices. The regulatory landscape is also changing as large states like California mandates diversity on corporate boards, and even the NASDAQ seeks 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.

The corporate diversity market has been one of reactionary spending, based on what we usually consider corporate crisis management. The day after George Floyd was murdered we were overwhelmed with calls from mid-sized companies in the greater New York across the healthcare, manufacturing, advertising and technology sectors to inquire about consulting. They couldn’t clearly explain what their company’s problem was, other than, “emails of frustration”.

The vague research in the D&I market suggests that diversity is an $8 Billion spend by American corporations annually. And as NYU Professor and author Pamela Newkirk elaborates, Diversity, Inc. is the “The Failed Promise of a Billion-Dollar Business”. We haven’t benefited much from the spend, and we’re not just thinking about diversity quotas, but 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 has evolved to Diversity Equity Inclusion & Belonging, and we like to regularly state that diversity is a reality, equity is a choice, inclusion is an act, and belonging is a result.

Diversity is a reality. Equity is a choice. Inclusion is an act! Belonging is a result.

The latter (equity inclusion & belonging) are a target on a much larger much, 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 Standards Organization (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. D&I in 2021 is an act of reducing insurance premiums.

D&I in 2021 is an act of reducing insurance premiums.

In short, regular self-assessment of actionable corporate inclusion policy reduces the cost of insurance policies. This new insurance ensures that the act of inclusion has a tangible financial incentive. It is much broader than human resources lifecycle management and includes risk domains like: 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 3rd 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 crises of diversity 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, which 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 triggers provide a more dynamic type of risk management.

Going forward inclusion ≥ diversity.

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