Human Capital and DEI

Implications for insurers

Greg Heidrich April 2022

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Photo: iStock.com/Sensvector

The following article has been adapted from a speech delivered by Greg Heidrich, CEO, Society of Actuaries, at the ReFocus conference in March 2022.

Human capital is often described as the cumulative education, knowledge, and skills that individuals gain and then use to do their work effectively. There are diverse types of capital everyone brings to the workplace and our volunteer work, including knowledge, social, and emotional capital.

Human capital, DEI, and their implications for all employers, including those with whom we work most closely, insurers, have been on the minds of many organizations. For some, it’s been a focus for many years; for others, the events we witnessed in 2020 were a major wakeup call and a catalyst for more attention to this key area.

How Are We Doing?

It’s clear that many—perhaps most—insurers have articulated a strong desire and commitment to achieve greater diversity in their workforces. There are many activities and approaches being tried, goals being set, and progress being made.

To get a sense of how we’re doing overall—and where there are gaps to be addressed—a little background is helpful. First, Figure 1 illustrates the U.S. population in 2020, looking at four major racial or ethnic groups: white, Black/African American, Asian, and Hispanic/Latino. The white population, about 60% of total; Black or African American, about 12.5%; Asian American, about 5.8%; and Hispanic/Latino, about 18.7%.

We all know the U.S. population is changing and diversifying. Here’s what it’s projected to look like in 2035. The total white population is declining significantly as a share of the total; the Black/African American population will stay about the same share; the Asian American population share is increasing a bit; and the Hispanic/Latino share is increasing by much more.

Now let’s look at that same table, focusing on the U.S. insurance industry employment for the same groups. Some observations are obvious: White employment in the industry is very high relative to its share of the population; Black/African American employment is about the same as its population share; Asian American employment is somewhat higher than its population share; and Hispanic/Latino insurance employment is well below its population share.

On the positive side, these numbers appear to show some good overall progress in achieving racial parity between employment and population—note the Black/African American and Asian American employment figures. But the high-level numbers can also mask a significant lack of progress in other areas.

We don’t have data on the racial and ethnic distribution of employment at various levels in the insurance industry. However, some data from the Society of Actuaries (SOA) can illustrate the problem clearly.

This is a snapshot of our current U.S. membership. As you can see, the white population is heavily predominant—73.8% of the total, followed by our Asian American population at 18.9%; Black/African American only 2.6%; and Hispanic/Latino just 1.9%. Clearly, this is way out of alignment with U.S. population patterns and trends into the future.

Actuarial science is a highly technical and specialized discipline and important to every insurance employer. Actuaries frequently climb to senior management levels in insurance organizations and into the highest C-level roles. I suspect their current level (or lack) of diversity is likely similar to other highly technical, highly trained, and upwardly mobile professional disciplines in the industry.

Future College Populations

Another set of data helpful for this discussion comes from Nathan Grawe at Carleton College in Minneapolis, Minnesota. Grawe’s research explores current and projected future trends in U.S. college and university enrollments.

Grawe identified several important factors. First, the American college-bound population closely matches actual population patterns. That might seem obvious, but before access to post-secondary education was so widespread, it wasn’t necessarily the case. College attendance in the U.S. today is available to most who want it and, in Grawe’s view, is nearly ubiquitous. Seventy-five percent of all students who earn a high school degree enroll in some form of post-graduate education, most of it at a college or university.

The racial and ethnic composition of the college-graduating population is likely to closely track population demographics in the future. Between 2018-2019 and 2033-2034, Grawe projects the non-Hispanic white student population will fall by about five percentage points; the non-Hispanic Black/African American student population will be down slightly; and the Asian American student population should be about the same. The Hispanic/Latino student population is projected to rise by about the same proportion as the drop in white and non-Hispanic Black/African American populations combined.

We’re entering a period when, overall, there’s going to be a noticeable drop in the college student population. For many non-elite colleges and universities, this may be an existential threat. It may, or may not, be a threat to insurance industry employee recruiting, but it seems likely insurers will be recruiting new talent from a smaller, more diverse student pool, and recruiting will become a lot more competitive.

Another important point to note is that the share of students who are their family’s first generation to attend college is still large; although falling, the first-generation proportion among U.S. college students today is a little less than 60%. By 2033-2034, it will decline to about 50% to 55%. It will likely be higher among the Hispanic/Latino population, from which a large share of the future student population will be drawn.

It’s important for an employer’s recruiting strategy to take account of these trends, given their implications for the industry and the profession our organization serves.

Diversity Recruiting

Several factors affect the effort to recruit a more diverse set of employees from the perspective of human capital development and culture.

First, there’s a strong business case for the value and benefit of having a diverse employee population, thinking of diversity across many different dimensions. A more diverse set of employees is associated with better decision-making, a better understanding of developing markets, and better financial results.

Second, employees care deeply about this issue. Work last year by Deloitte and CNBC found that about 80% of employees want to work for employers that value diversity and inclusion. To be successful at attracting and retaining all employees, insurance employers will need to be good at recruiting, retaining, and promoting diversity.¹

Employers face three challenges: low personal or family awareness of the industry; late awareness; and weak or non-existent professional networks.

These issues are deeply intertwined. Leroy Nunery’s work² for Marsh identified a lack of student exposure to the industry and a lack of family networks into the industry as major barriers to entry for young Black/African American people. A study³ by the SOA and our organizational partners found that low or late personal awareness and low family awareness were the most important barriers to entry into our profession.

For this reason, a laissez-faire approach to diversity improvement doesn’t work—the populations we want to attract haven’t heard of us, don’t know anyone who works for us, and don’t know why they should join this industry or profession.

Low family awareness matters a lot. Recall that 55% to 60% of college students are first-generation students. That means their families are unlikely to have strong professional networks or strong connections to business or to the training and disciplines insurers need.

Several years ago, I spoke with the dean of the business school at an important state university in the Southwestern U.S., a school whose student population is overwhelmingly Hispanic/Latino. He told me that when he began his work as dean of the business school, his Master of Business Administration (MBA) students overwhelmingly identified their preferred employment destination as government. His first challenge as dean was to make clear to students that the school was preparing them for careers in “business” administration, not “public” administration.

We know that first-generation students overwhelmingly rely on advice from close family members and friends to make choices about areas of study and their first jobs. The lack of family knowledge of the industry, or the disciplines it needs, makes recruiting difficult.

Finally, when these students do learn about the industry—or specialties within it such as the actuarial profession—it’s often later than others, putting them at a competitive disadvantage for launching their careers on the best path and at the best pace.

Last year, the Chief Actuaries Forum, a group of chief actuaries from many of the leading actuarial employers in the United States, shared valuable information on the techniques and practices being used by many leading employers to support diversity recruiting efforts.

What are the leading practices? Well, they include dedicated diversity hiring programs; a focus on meeting students where they are, often at historically Black colleges and universities (HBCUs), Hispanic-serving institutions, “non-flagship” state universities, and community colleges. These practices also include setting diversity hiring goals, mandating diverse hiring slates, and using diverse recruiters.

Employers doing this work should recognize that they face a lot of competition, too. It’s not only the insurance industry or actuarial profession that wants to diversify its employee populations. I was recently discussing this issue with an executive in this field. I raised the idea of increasing the SOA’s support for an actuarial summer program at one of the nation’s more prominent HBCUs. It’s a good program, and we’ve supported it financially before. She suggested we think about providing support in another way. She said, “We know the program and the school well. Google has already endowed so many programs and created so many internships at that university, the actuarial profession’s odds of increasing its penetration there are very slim.”

Insurance employers that want to be successful in diversity recruiting will need to copy Google’s approach, embed themselves in some specific university programs, and invest in those relationships.

Culture, Development, and Retention

The process of acculturation, development, and retention for diverse students and new hires is also critical. There have been many studies and reports telling us about the challenges faced by ethnically and racially diverse employees in majority white institutions, like insurance employers.

For these employees, the issues include a feeling of cultural isolation. Individuals may not see many people like themselves. Because of that, they may be reluctant to be authentic, and they may also be reluctant to take risks in the workplace.

Based on interviews with Black executives in the U.S. insurance industry, Nunery found that many feel there is less room or tolerance for mistakes by Black employees.

These feelings are a recipe for caution, risk aversion, and ultimately higher turnover at any employer that doesn’t work to actively counter or overcome these feelings.

So what are leading employers doing? The Chief Actuaries Forum research and similar work done by the International Association of Black Actuaries (IABA) provide a great list, which has been confirmed and amplified in every conversation I’ve had with those who do this work for insurance employers. They include:

• Intentional, dedicated and closely-managed mentorship and sponsorship programs aimed at helping eliminate a sense of cultural isolation and building professional networks;
• Inclusion training for all employees, especially managers, to help them learn how they can help diverse employees come into the mainstream and avoid slights, harm, or discomfort;
• Employee or business resource groups that build networks and create a sense of inclusion and belonging for diverse employees;
• And, of course, the basics of making sure pay is equitable, opportunities available to all, and performance appraisals objective and free of bias.

There’s nothing on this list that’s a surprise, but the key is how well-resourced the efforts are, the priority they’re given, and how well they’re sustained.

Reflecting on some of the points made earlier:

• The U.S. population is becoming more diverse and will continue to do so for the foreseeable future. The same is true of university student populations.
• Any employer that wants a competitive diversity recruiting strategy needs to adapt its programs to align with the current demographic and cultural environment.
• Employers will have to go where the students are, and they’ll have to deal with low and late awareness of the industry.
• Once this talent is recruited, employers will need to create, manage, and sustain a variety of programs supporting inclusion to retain their diverse staffs. If employers don’t, new employees will likely feel culturally isolated, and the companies will likely have wasted recruiting resources and made themselves less attractive to other talent, too.

We need new, diverse talent, and it needs all of us to be more successful at attracting this talent to our industry.

Copyright © 2022 by the Society of Actuaries, Chicago, Illinois.