AI risks making some people ‘uninsurable’, UK financial watchdog warns

Stay up to date with free updates

Simply register at Financial and Market Regulation myFT Digest — delivered straight to your inbox.

The insurance industry’s use of artificial intelligence could make some people “uninsurable”, the head of Britain’s financial body has warned, despite calling for the sector to be more “willing to experiment” with new technologies.

“We want safe and responsible use of artificial intelligence to drive beneficial innovation,” Nikhil Rathi, chief executive of the Financial Conduct Authority, said in a speech on Thursday. “But also an open conversation about risks and trade-offs.”

Citing the example of “hyper-personalization of insurance through artificial intelligence”, Rathi said this could benefit many consumers, but also warned that “there is a risk of making some customers ‘uninsurable’ or even potentially discriminatory”.

Some experts have expressed concern about the use of artificial intelligence in areas such as health insurance, where live data could increase personalization and reduce costs for some consumers, but also risk making it harder for some unhealthier people or those without access to technology to achieve affordable coverage.

Eiopa, the EU’s insurance regulator, said a few years ago that companies should “make reasonable efforts to monitor and mitigate biases in data and AI systems” given the risk that algorithmic pricing models end up discriminating against certain people.

The FCA launched a discussion paper on AI two years ago. While it has introduced some specific rules governing its use by financial services providers, it said in April it would “continue to closely monitor” the adoption of the technology.

Rathi equated the risks of using artificial intelligence with the recent controversy over the dynamic pricing model, which caused the cost of highly sought-after Oasis concert tickets to rise. “Just because something can be done doesn’t necessarily mean the public will accept it,” he said, adding, “Not everyone will ‘respond’.”

The head of the FCA, who has focused on protecting consumers since joining the regulator in 2020, encouraged those who believe its vast regulation stifles innovation, saying it should be “ready to rethink some of our rules and approaches regulation” to boost financial inclusion. .

He acknowledged that there were “tensions between the prescription previously required and what a rapidly digitizing financial services market now requires”.

Underscoring the link between higher economic growth and increased financial inclusion, he said Singapore’s position at the top of financial inclusion rankings showed that “a successful global financial center and a financially inclusive economy can go hand in hand”.

He added that the UK was 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 Brazil’s Pix instant payment service and India’s Aadhaar biometric identification system.

But he also gave some examples of UK innovation, including Finexos, which is working to make credit affordable, and Noggin, which produces an alternative credit score for consumers with limited credit histories.

The previous Conservative government gave the FCA a new secondary mandate last year, which required it to consider the impact of regulation on growth and competitiveness.

On Thursday, the FCA bowed to pressure from Britain’s £267 billion investment industry, announcing that its members would be exempted from disclosure rules stemming from EU law and due to be replaced next year.

He said the regulator “accepts that the risk of a few experiments failing or some people not benefiting from the innovation is outweighed by the potential benefit to the majority of consumers and long-term growth and improved productivity.

“Let’s open up this debate and be willing to experiment and learn,” he added. “And that includes experimenting with our processes and rules.”