The New York Department of Financial Services (DFS) has issued Insurance Circular Letter No. 5 (2021) (Circular Letter) relating to insurer diversity in the boardroom and C-suite. The Circular Letter outlines new diversity-related expectations for all New York-regulated insurers and DFS’s plans for facilitating the changes it expects insurers to make. The Circular Letter is the latest effort by DFS to encourage and promote diverse leadership in the insurance industry and the broader insurance community. DFS Superintendent Linda Lacewell announced the Circular Letter during a Diversity, Equity and Inclusion (DEI) Conference hosted by joint insurance trade groups earlier this week.
The Circular Letter provides that DFS “expects” all New York-regulated insurers (domestic and foreign) to treat diversity like other strategic priorities and to “make the diversity of their leadership a business priority and a key element of their corporate governance.” In particular, the Circular Letter provides that “increasing the diversity of a company’s leadership should not be a check-the-box exercise…. 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.”
As a “first step,” DFS intends to collect data from insurers with more than $100 million in annual New York premiums relating to the gender, racial and ethnic composition of their boards and management as of December 31, 2019 and 2020, including information about board tenure and key board and senior management roles. DFS plans to collect this information during the summer of 2021, and could formally require the information pursuant to its authority under New York Insurance Law Section 308 concerning “Special Reports” (a Section 308 request). DFS has indicated that it plans to publish its findings on an aggregate basis “based on insurer type and other relevant factors” in the Fall of 2021. The Circular Letter also “strongly encourage[s]” insurers to publicly disclose the diversity composition of their boards and management, urges insurers to focus on their pipeline of future diverse leaders, and recommends that insurers focus on the diversity of their insurance producers and third-party providers.
The Circular Letter is the latest effort by Superintendent Lacewell to encourage diversity and inclusion throughout the insurance community. During opening remarks of the 2019 National Association of Insurance Commissioners (NAIC) Summer National Meeting, Superintendent Lacewell emphasized the small number of women insurance commissioners and underrepresentation of women in the insurance industry. More recently, a February 17, 2021 DFS Press Release announced the appointment of a “diverse group of experts who will provide their insights to help DFS” as members of DFS’s Insurance Advisory Board.
The Circular Letter was published nearly six months after DFS adopted Insurance Regulation 215 (11 NYCRR Part 90) concerning corporate governance annual disclosure (CGAD) requirements. The New York CGAD requirements were largely based on the NAIC Corporate Governance Annual Disclosure Model Act (Model 305) and Regulation (Model 306) that are now NAIC accreditation standards. The New York CGAD regulation requires all New York-authorized insurers to describe their corporate governance framework and, with respect to diversity and inclusion in particular, require insurers to provide a description of the way in which they identify, nominate, and elect members to their board and its committees, including “whether there is a diversity policy in place,” and, if so, “the way in which the diversity policy functions.” See 11 NYCRR Part 90.3(a)(4)(v)(d). Unlike the Circular Letter data request (which expressly applies only to insurers with more than $100 million in annual New York premium) the CGAD reporting requirements are applicable to all New York authorized insurers regardless of size. For more information on the New York annual CGAD filing requirements due June 1, see our Legal Alert: New York Department of Financial Services Proposes Trio of Corporate Governance and Oversight Rules for Insurers.
Questions relating to insurers’ diversity-related efforts are expected to be integrated into DFS’s examination process starting in 2022. The Circular Letter also appears to reserve the right to integrate its reporting requirement into a routine disclosure, noting that DFS “will consider collecting and disclosing similar information in the future, including on a more granular basis, taking into account any other data collection and disclosure requirements that may be imposed on the insurance industry.”
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