UK insurance regulators are proposing the use of representation targets as well as linking executive remuneration to diversity and inclusion metrics.

This is intended to promote more innovative insurance products and services that are better suited to the wide-ranging needs of consumers.

A more diverse workforce counters “groupthink and overconfidence” which are often at the root of financial crises, the authorities say.

Britain’s Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA) and Bank of England have set out diversity and inclusion policy options in a discussion paper aimed at improving governance, decision-making and risk management within insurers and banks.

“We are concerned that lack of diversity and inclusion within firms can weaken the quality of decision-making,” FCA CEO Nikhil Rathi said.

“We look forward to an open discussion on how we should use our powers to further diversity and inclusion within financial services, to the mutual benefit of firms and their customers.”

The regulators are seeking to collect data from firms about their workforce. A pilot survey later this year will help develop the proposals set out in the discussion paper and test how firms can provide data with a view to regular reporting in the future.

The discussion paper is open until September 30 and the feedback and data received will be used to develop detailed proposals, with a joint consultation planned for the first quarter of next year.

PRA CEO Sam Woods says while some progress has been made over the last decade, the discussion is still in its early stages and more needs to be done to speed up progress. Regulators and industry need to work together to increase diversity at senior levels, he says, and ensure that financial services firms are best equipped to serve the economy.

“A lack of diversity of thought can lead to a lack of challenge to accepted views and ways of working, which risks compromising firms’ safety and soundness,” Mr Woods said.

See Analysis.