FCA chief executive Nikhil Rathi has warned that using artificial intelligence (AI) for insurance could leave some customers uninsurable or potentially result in discrimination.
Rathi (pictured) agreed that AI could benefit many customers by personalising offers but acknowledged there were risks to its wider implementation which could see potentially vulnerable people lose out.
And he highlighted the mental health issues that could arise from poor financial situations.
Speaking at Stepchange Connected Rathi explained how financial inclusion and economic growth were not mutually exclusive and some of the potential pitfalls of the sector failing to recognise it.
Discussing the benefits and harms of technological developments Rathi said: “We want safe and responsible use of AI to drive beneficial innovation, but also an open conversation about the risks and trade-offs.
“For example, AI-enabled hyper-personalisation of insurance could benefit many by providing more tailored premiums, but at the same time runs the risk of rendering some customers ‘uninsurable’, or even potential discrimination.”
Rathi also noted that improving financial inclusion and capability could help mitigate barriers to, and possibly catalyse, growth.
“Links between over-indebtedness and mental health can impair productivity at work or even leave people unable to work,” he added.
Balancing risks of failure
The FCA leader also talked more widely about addressing financial inclusion and supporting growth more widely across the economy and population.
“This will involve tackling the root causes of financial exclusion, not just symptoms,” he said.
“Without a sustained commitment to financial and digital literacy alongside numeracy, we face an uphill battle.”
Rathi added that there was a balance to reach for financial markets and the regulator itself in how to best improve the situation.
“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?” he asked.
“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.”
So he urged an opening-up of this debate and a willingness to experiment and learn.
“And that includes experimenting with our processes and rules,” he said.
‘Rethink rules’
Rathi added that the regulator needed to consider new approaches and “rethink rules” to tackle the problem.
“We often find ourselves dealing with the symptoms of financial exclusion, but we also need to confront the causes,” he said.
“Improving financial literacy, and digital literacy and inclusion – from schools through to the workplace.
“Embracing digitalisation and technological innovation.
“And being more ready to experiment and take some measured risk to deliver better long-term economic outcomes.
“That includes the FCA being ready to rethink some of our rules and regulatory approaches, and we would ask for your support as we do.”
Because, Rathi concluded, this will require a broader coalition to work together – government, industry, regulators, schools, employers, organisations such as StepChange – with candour, determination and dynamism.
“Financial inclusion is not a target to be met but an evolving journey,” he said.
“We must evolve too, working together. Educating, enfranchising and empowering every single person.
“Because that is the way our society will thrive, our economy will grow, and how we will ultimately protect consumers in the long-term.”