The hyper-personalization of insurance enabled by artificial intelligence could benefit some customers but render others “uninsurable,” Nikhil Rathi, CEO of the United Kingdom’s Financial Conduct Authority (FCA), said Thursday (Sept. 19).
In a speech drafted for delivery at StepChange Connected 2024 in Leeds, Rathi cited this as an example of how regulators must consider both the risks and the benefits of AI and other technology when promoting financial inclusion.
“We want safe and responsible use of AI to drive beneficial innovation,” Rathi said. “But also an open conversation about the risks and trade-offs.”
Other examples of technology risks include the privacy concerns associated with better data sharing and the recent controversy around the dynamic pricing used in a sale of Oasis concert tickets, Rathi said.
Digital inclusion can also promote financial inclusion, Rathi said. He cited as examples the efforts of Finexos to increase the availability of affordable credit, the work of Noggin to produce an alternative credit score for consumers with limited credit history, and a report from an unnamed FinTech that anonymous chatbots providing debt advice benefit consumers by reducing the stigma associated with debt.
“Do we accept that the risk of a few experiments failing or some people not benefiting from innovation is outweighed by the potential benefit to the majority of consumers and long-term growth and productivity improvements?” Rathi said. “I freely admit that we don’t yet have full estimates of the benefits of inclusion to growth and productivity. But experience elsewhere suggests that resolving foundational issues could have big impacts.”
Rathi suggested that financial inclusion can be promoted by improving financial literacy, enhancing digital literacy and inclusion, embracing digitalization and technological innovation, and “being more ready to experiment and take some measured risk to deliver better long-term economic outcomes.”
It was reported in June that financial services companies have been slow to embrace AI products because of regulatory concerns and worries about job losses.
In another report, the Bank for International Settlements said in June that the financial sector is among the “most exposed” to both the benefits and the risks of AI. The benefits of AI for the sector include improvements to lending and payments, while the risks include more sophisticated cyberattacks.
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