Insurers will have the freedom to set their own diversity policy under the new rules, which apply to firms subject to the Solvency II framework as well as large insurers that are not in scope of the Solvency II regime.
The Prudential Regulation Authority (PRA) said insurers are "best placed to determine themselves the details of their policy to promote diversity" because "the areas requiring greater representation will differ across firms, and because the needs of firms will also vary". It could be "counterproductive" to detail a prescriptive approach to diversity when "organisations are still experimenting with new approaches", it said.
Setting prescriptive requirements "would also require the PRA to make a judgement on the factors of diversity most important to firms, which will differ", the PRA said.
"Although measurable factors such as gender, age, tenure and race are important, diversity of approach, skills and experience are just as important to combat groupthink," it said.
The PRA's final rules reflect proposals it consulted on last year following the introduction of the senior insurance managers' regime (SIMR).
According to the PRA's policy statement (16-page / 647KB PDF), one respondent to its consultation raised concerns that SIMR might adversely impact on the ability of insurers to put together a diverse board. They said SIMR has "placed additional requirements on individuals taking up senior positions within firms and this increased the risk of the restriction of the talent pool, particularly for NEDs (non-executive directors)".
In response, the PRA stated that it was "mindful that misconceptions about the operation of the SM&CR and SIMR could potentially result in increased lack of diversity on firm boards, including skills diversity". It may take further steps should those fears materialise.
Financial services employment law expert Jon Fisher of Pinsent Masons, the law firm behind Out-Law.com, said: "Regulators are increasingly focusing on diversity as a key means of controlling risks. The PRA’s guidance follows the FCA’s recent discussion paper on the importance of diversity in driving cultural change."
"The recent publicity surrounding the first year of gender pay gap reporting has also highlighted why firms should be looking at ways of improving the diversity of their senior management teams. The gender pay gap in financial services exceeds the national average, and the only effective means to address that will be to improve the representation of women in senior roles," he said.
Stuart Affleck, a diversity and inclusion expert at Brook Graham, which is owned by Pinsent Masons, said: "We are seeing a shift in focus from achieving diversity in pure numerical terms to how inclusion can really help achieve board and management team effectiveness. Ensuring sustainable change and weaving it into the organisations DNA is central to the cultural change required."