Artificial intelligence (AI) could help tackle the protection gap, but the technology may also lead to more hyper-personalisation, making the market more opaque.
This is according to a review led by Financial Conduct Authority executive director Sheldon Mills which sets out how AI could reshape retail financial services for consumers, firms, markets and regulators by 2030 and beyond.
Tackling protection gaps
Mills suggests AI could address protection gaps as while 84% of adults hold a general insurance policy, only 30% hold protection policies such as life or income protection.
“A personal agent with a fuller view of a consumer’s circumstances could help identify gaps, explain options and prompt consumers to consider cover at relevant life moments,” he said.
“AI can personalise products, pricing and support in ways that may genuinely improve outcomes.
“Better matching could help consumers find more suitable products, switch more easily and receive services that better meet their needs.”
Making markets more opaque
However, Mills warned the same AI services could make markets more opaque.
“Consumers may see only the options selected by an AI system and not understand why a price, product or recommendation has been shown to them,” he maintained.
“AI’s deeper analysis of much larger amounts of data could also amplify bias, exploitative pricing or exclusion unless firms can monitor, explain and correct outcomes.”
Hyper-personalisation
And he notes hyper-personalisation is the clearest example of this.
“At its best, it could make products and services more relevant, encourage firms to innovate to serve new consumer niches, adapt support to individual circumstances, and help consumers find products that better meet their needs,” Mills continued.
“At its worst, it could create a market where consumers see only a narrow, personalised slice of options and cannot tell whether they are receiving a fair deal.
“The impacts of hyper-personalisation may vary depending on the interface model. Firm-controlled applications may have stronger incentives to steer consumers towards their own products, while platform, operating system or aggregator models may shape choice through ranking, defaults, commercial arrangements or technical integrations.”
