The FCA has published an update on its key areas of interest as regards new rules and regulations, one of which is insurance renewals. Action is still likely on the `loyalty penalty’ issue, although nobody knows exactly what that will be. There’s also the matter of AI-powered underwriting when it comes to risk and some rules on sifting out bias are on the agenda.
Commenting on the news, Tony Tarquini, European Insurance Director, Pegasystems said:
“The FCA latest Sector Views report highlights insurers’ key concerns when it comes to implementing AI in the future, including the need for ethical and transparency parameters. And their concerns are justified. Other industries have seen AI amplifying inherent prejudice and this has to be avoided when writing policies and judging claims. Furthermore, the transparency of the AI in use has to be at a level whereby a regulator can understand the rules and algorithms in place which produce a set of specific outcomes.”
“In a recent Pega survey 54% of respondents believe it’s possible for AI to show bias in the way it makes decisions, so consumers are also switched on to this issue. Therefore, insurance firms that can demonstrate transparency and fairness in how they calculate their policies are set to take the sector by storm. They should also strive to use AI to help pinpoint bias and adjust and improve AI systems using additional testing, guidelines, and controls.”
Paul Dyer, Head of Regulatory Risk and Assurance at Huntswood and former deputy chief risk officer at the FCA, said:
“The FCA continues to challenge insurers on the issue of pricing practices, as well as on internal culture, diversity and personal accountability. The twenty-twenties could prove to be a make-or-break decade for many businesses within the sector. We could, potentially, see the entire industry change beyond recognition before too long.”
“The general insurance sector has been subject to substantial disruption over the past 12 months, with 2020 promising to be another tricky year as businesses deal with an increasingly volatile and competitive marketplace. However, there is real competitive advantage and opportunity for those firms who go above and beyond to ensure that their customers are not exposed to unnecessary risk or harm.
“Poor pricing practices, in particular, look set to remain a high-priority issue for the regulator moving forwards, meaning that insurance companies should be looking at their use of unfair or differential pricing models, especially when dealing with vulnerable customers.
“To ensure they are delivering good customer outcomes, firms should focus upon developing pricing practices that seek to balance ‘return on equity’ and ‘value for money’. Putting in place a robust strategy and strong product governance will underpin this, allowing firms to set fair prices for their target markets, while also remaining compliant.”