The North American insurance industry has made great strides in building a gender-diverse workforce. But many of these efforts have benefited White women. The industry now faces a new challenge: bolstering racial diversity, particularly for women of color. Today, only one in 20 senior vice presidents and one in 35 direct reports to CEOs in insurance are women of color. McKinsey recently spoke with Kweilin Ellingrud, a senior partner in McKinsey’s insurance practice, to discuss this issue in more depth. She highlights the workforce trends she has seen over the past few years, the progress insurance has made in terms of diversity, and the hurdles the industry has yet to overcome to become more equitable.
McKinsey: Why should insurance executives care about diversifying their workforce racially?
Kweilin Ellingrud: Diverse teams perform better: they solve tough problems better, they are less susceptible to groupthink, and they push each other’s thinking. Diverse teams solve challenging problems better and, equally importantly, they are more open to continuous improvement rather than assuming that the first solution is the best one.
When we study this quantitatively, we see that companies across industries with diverse management teams also perform better in terms of market cap appreciation. Compared to companies in the median, companies in the top quartile of gender diversity are 25 percent more likely to outperform from a market cap appreciation perspective and are 36 percent more likely to outperform in a given industry. It’s clear that diversity is strongly correlated with financial performance. Executives should want a more diverse team not only because it better reflects your customers and society but also because it is good business.
McKinsey: What’s the current state of diversity in insurance?
Kweilin Ellingrud: Insurance, specifically life insurance, annuities, and home and auto insurance, is significantly more gender diverse than the average industry in North America. In fact, of all entry-level workers in the industry, which make up about 70 percent of employees, more than half are women. At the board level, 40 percent of seats in insurance are held by women.
What’s more, in insurance, for every 100 men promoted to manager, 104 women are promoted—significantly higher than the 87 women promoted across industries. That’s an accomplishment: it means that the “broken rung” of initial promotions is eliminated, which offers ample opportunity for women. Attrition rates for women in insurance are also lower at all levels when compared to men in the industry.
Unfortunately, most of the progress has been almost exclusively for white women, and men and women of color are lacking representation. Men of color make up only 8 to 14 percent of the talent pipeline at every level, but representation for women of color is lacking more so. For example, men of color hold 14 percent of board seats in insurance, but women of color hold only 2 percent of them—that’s one out of 50 board of directors seats. Similarly, men of color hold 12 percent of C-suite roles, while women of color hold 3 percent of them. These numbers have remained extremely low for a long time.
Improving diversity in insurance cannot solely be a goal for white women. Indeed, focusing on women of color could have significant positive benefits. Many organizations have found that when they create better pathways for women of color, they simultaneously improve experiences for men of color and for women overall because the challenges of intersectionality are so stark.
McKinsey: You recently authored the report Asian American workers: Diverse outcomes and hidden challenges. What struck you most about the research insights?
Kweilin Ellingrud: Asian Americans make up about 6 percent of the United States population, and that number is growing quickly. But they are often overlooked in workplace diversity efforts because leaders think they are already doing well. In some ways they are, particularly in terms of educational attainment and intergenerational mobility, which are closely linked. In many other ways, however, they are not.
Ten percent of Asian Americans live in poverty, and Asian Americans overall have the largest income disparity among major racial groups in the United States. While the percentage of Asian Americans in highly paid and lower-paid jobs exceeds their share of the general population, there is still a racial pay gap of 7 cents on the dollar, even in occupations paying less than $100,000 a year.
While Asian Americans may be more likely than average to get a college degree and a good job, not as many of them are advancing to senior leadership positions. This is especially true for Asian American women like me: between the entry level to the C-suite, representation drops by 70 percent, and for every six Asian men in the C-suite and executive level, there is only one Asian woman.
Asian American employees also report feeling less included at work and having fewer effective sponsors compared to their White peers. It’s hard to address what you cannot measure, and most organizations lump all Asian Americans together despite there being diversity within the racial group. Tracking more granular data by ethnicity (East Asian, Southeast Asian, and South Asian, for example) as well as gender will help track these metrics more accurately. It’s also important to support Asian American workers at critical moments through better mentorship and sponsorship.
McKinsey: How has COVID-19 changed the industry in terms of diversity?
Kweilin Ellingrud: So much is different now: the talent market, working norms, the pace of change, digital adoption, awareness of and need for insurance, interest rates, and more. It feels like a different environment than it was three years ago. Norms that may have taken decades to change have changed dramatically. In terms of diversity in the workplace, I think a few key things are different. Women are leaving their companies at the highest rate in years: for every one woman director who is promoted, two are leaving. There are still 500,000 fewer women in the US workforce compared to three years ago. So companies are having a hard time retaining the diversity they have built up.
Moreover, employees expect more in terms of a sense of purpose—here, insurance companies have a natural advantage—quality of culture and colleagues, and flexibility. Flexibility is now imperative: 90 percent of women want to work in a hybrid or remote way, and only 7 percent of companies plan to pull back on flexible work options in the next year. Companies have placed more of an emphasis on creating hybrid work environments, but managers need to prepare as well. About eight out of ten companies expect managers to promote well-being, but less than half of companies train managers on minimizing burnout.
More broadly, the line between work and personal life has blurred. As women juggle more at work and at home, it’s been more challenging for them to stay in the workforce over the past three years. COVID has created a career gap for more women than men, and to ensure that it does not permanently set women back, insurance companies can attract and retain more women, especially women of color, into their workforces over the next year or two to accelerate diversity.
Kweilin Ellingrud is an MGI director and a senior partner in McKinsey’s Shanghai office.