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The insurance industry’s use of artificial intelligence could make some people “uninsurable”, the head of Britain’s financial regulator has warned, while calling on the sector to be more “willing to experiment” with new technologies.
“We want safe and responsible use of AI “It is essential to stimulate beneficial innovation,” Nikhil Rathi, chief executive of the Financial Conduct Authority, said in a speech on Thursday. “But also to have an open discussion about the risks and trade-offs.”
Citing the example of “hyper-personalization of insurance through AI,” Rathi said this could benefit many consumers, but also warned that it “risks rendering some customers ‘uninsurable’ or even potentially discriminating against them.”
Some experts have expressed concerns about the use of AI in areas such as health insurancewhere live data could increase personalization and reduce costs for some consumers, but also risk making it harder for some people with poor health or those without access to technology to get affordable coverage.
Eiopa, the European insurance regulator, said a few years ago that companies should “make reasonable efforts to monitor and mitigate bias in data and AI systems,” given the risk that algorithmic pricing models could end up discriminating against some people.
The FCA launched a discussion paper on AI two years ago. While it has introduced few specific rules governing its use by financial services providers, he said In April, she said she would “continue to closely monitor” the technology’s adoption.
Rathi compared the risks of using AI to those of recent controversy The dynamic pricing model has caused the price of popular Oasis concert tickets to rise. “Just because something can be done doesn’t mean the public will necessarily accept it,” he said, adding: “Not everyone will follow suit.”
The FCA chief, who has focused on consumer protection since joining the regulator in 2020, encouraged those who believe its sweeping regulation stifles innovation by saying it should be “prepared to rethink some of our rules and regulatory approaches” to boost financial inclusion.
He acknowledged that there were “tensions between the prescription previously required and what a digitalising financial services market now demands”.
Highlighting the link between stronger economic growth and increased financial inclusion, he said Singapore’s position at the top of financial inclusion rankings showed how “a thriving global financial centre and a financially inclusive economy can go hand in hand”.
He added that the UK ranked seventh in the latest ranking and there were still 1.1 million people in the country without a bank account.
He cited several examples of how technology has been successfully used to boost financial inclusion in other countries, including the Pix instant payment service in Brazil and the Aadhaar biometric identification system in India.
But he also gave some examples of innovation in the UK, including Finexos, which is working on the availability of affordable credit, and Noggin, which produces an alternative credit score for consumers with limited credit history.
Last year, the previous Conservative government gave the FCA a new secondary mandate that required it to consider the impact of regulation on growth and competitiveness.
On Thursday, the FCA bowed to pressure from the UK’s £267bn investment fund industry by announcing that its members would be exempt from disclosure rules under EU law, which are due to be replaced next year.
He asked whether we should accept “that the risk of some experiments failing or some people not benefiting from the innovation is outweighed by the potential benefit to the majority of consumers and by long-term growth and productivity improvements.”
“Let’s open up this debate and be willing to experiment and learn,” he added. “And that includes experimenting with our processes and our rules.”