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Insight from
insurance NEDs on the relationship between diversity and bias

Our viewpoint

At our recent roundtable for Insurance NEDs, it was intriguing to discuss the connection between diversity and bias. Having a diverse range of individuals on the board is likely to lead to better (ie less biased) decision making. However, even a diverse board can be subject to biases – some helpful and others unhelpful.

Diversity vs “bias”

Diversity arises from each person having a different background or outlook. This is likely to result in better decision making. A lack of diversity could result in unhelpful bias (eg groupthink), whereby there is insufficient challenge of prevailing views.

However, each board member’s different outlook will itself contain “biases”, some of which are helpful and others of which are not.

Attendees agreed that it is necessary to consider how to make the most of the “helpful” biases. For example, someone who has been through a corporate failure may be more “biased” towards being aware of certain risks, or someone from a non-insurance background may have fresh perspectives that are helpful.

I am a banker on an insurance board. The board want me to have that ‘bias’, that is what they are paying me for.

The board should also seek to minimise the impact of “unhelpful” bias, for example, a dominant individual, or someone prone to racial or gender biases.

Board diversity – there is some way to go

It was surprising to see that only half of the attendees said they had used or are planning to use board diversity as a way to combat behavioural bias in decision making.

This raises the question of whether there are certain barriers to entry for people from certain backgrounds, and whether board recruitment criteria need refreshing.

Even where there is diversity in the board, groupthink could still arise for various reasons including personality dominance, lack of empowerment, poor management information, etc.

How can boards ensure they are engaging the ‘helpful’ biases and combating the ‘unhelpful’ ones?

The majority of the attendees said that they are already using or planning to use board effectiveness reviews to reduce the impact of behavioural bias within their firms.

In my view, it is important that board effectiveness reviews carefully consider the issues of diversity and identify helpful/unhelpful biases. One way of doing this is to perform a deep-dive review of diversity within the board and consider all the “biases” every individual brings to the table.

Please get in touch if you would like to come along to our future Insurance NED roundtables for some thought-provoking discussion.