As the insurance and wider financial services industry are yet to fully embrace either FinTech or AI, Isaac Alfon considers what impact their introduction has had on risk management.
During 2018, I wrote several posts about FinTech, Artificial Intelligence (AI) and risk management. I was kindly invited to present to the Network of Consulting Actuaries, I chose to use this opportunity to consolidate my views on the subject.
There were several ideas flowing through my mind.
Firstly, informal evidence suggests that, for all the hype, FinTech and AI have not yet become mainstream in insurance or in financial services more generally.
Secondly, the largest business transformation arising from FinTech and AI is the adoption of these technologies by incumbents. Indeed, I explored this in the context of banking through the group project at the Oxford FinTech Programme I completed in December 2018.
Thirdly, someone who works for a multinational insurer made the observation during an InsurTech event in London that as a regulated entity, the insurer has responsibilities and obligations towards their customers and must follow due process before they roll out new technologies. There was a hint of an apology in this observation to the nimble start-ups in the audience.
Putting all these thoughts together led me to see the main challenge to the adoption of FinTech by incumbents as governance, including how risk management is applied in practice. If the aim of risk management is to ‘protect’ or block, then the incumbent does not have an obvious lever to support the introduction of AI tools and FinTech.
If, on the other hand, the aim of risk management is perceived as to ‘protect and enable’, then risk management can be part of the solution. Risk management can lead to the creation of necessary infrastructure to ensure that AI tools achieve their transformational potential. This includes articulating a vision of how a control framework should be leveraged, considering the impact of FinTech and AI on risk management frameworks, focusing on explainable AI, and articulating the implications for the target operating model. This will facilitate incumbents’ adoption of FinTech and AI.
Take a look at the presentation I gave (here) for a more detailed articulation of these points.
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