The regulation of digital advice
Regulators in the United Kingdom have identified many of the same challenges in regulating digital advice as they have when advice is given by humans. Algorithms operate within design parameters, and many of these may codify bias, taking many forms:
- limiting the compared set of products, often with the result of showing one product to be much better than the others compared, when a wider market comparison would be less flattering
- excessive focus on price or brand to the detriment of considering fundamentals – such as suitability, coverage, and the value created by how these interact with price
- dictating the criteria for comparison and selection – with the result that the consumer may not be aware of how the product would perform if different criteria were used
- limiting the ability for the consumer to define their own vision, goals, and needs – defining the goal can skew the question of suitability
- not offering alternatives if a consumer falls outside the criteria of an online service consumers can form the view that they cannot be insured, rather than not meeting the requirements for just this particular product.
Often the effect of these limitations may not be clear to consumers. Some may suffer from poor advice. Others may get a feeling that all is not well.
Consumer rights advocates will highlight unfairness and poor outcomes. Review sites will scan offers, testing them, rating them, seeking to become “trust engines”. In such circumstances it will truly be said that “trust is the new currency” as Rob Everett, Chief Executive of the Financial Markets Authority, has said.
There is a real risk that improving technology may not necessarily achieve the greater transparency and trust required for financial services of the future. This is backed up by research done by The Australian Securities and Investment Commission (ASIC). Findings reported (report 498) from the life insurance sector showing that consumer complaints arise more frequently from direct insurance, and claims payment rates are lower, while complaint rates are reducing in the intermediary segment.
In fact, people that received advice while applying for their cover had a much lower rate of claim declines. We believe the same is true of general insurance.
So, what would be ideal? The future is digital - and human. For more information on making this work for you, contact an Insurance Advisernet Member Broker today.
Written by Insurance Advisernet New Zealand
General Advice Warning
The information provided is to be regarded as general advice. Whilst we may have collected risk information, your personal objectives, needs or financial situations were not taken into account when preparing this information. We recommend that you consider the suitability of this general advice, in respect of your objectives, financial situation and needs before acting on it. You should obtain and consider the relevant product disclosure statement before making any decision to purchase this financial product.