A legal centre for consumers has voiced concern that with the rise of AI in FinTech, there could be increased cases of consumers being 'profiled for profit' and the embedding of unfair and exclusionary price discrimination models into financial services including insurance, both of which have the strong potential to lead to increased economic inequality and financial exclusion.

In a submission to the Department of Industry, Innovation and Science’s Artificial Intelligence, Australia’s Ethical Framework discussion paper, the Financial Rights Legal Centre (FRLC) says that in In the insurance field, InsurTech is using AI to build behaviour into premium pricing.

Connected devices and telematics technology (e.g. Fitbit), connected home technologies (e.g. Amazon Alexa) and what is known as the “Internet of Things” (e.g. connected smoke alarms, locks, fridges and light switches) are also being put to specific use by the insurance sector. Telematics technologies involve the use of GPS technology and increased information processing power to collected and transmit information and data to insurers directly.

Telematics

Telematics devices being used by insurers include:

• Motor vehicle telematics – devices in vehicles that can record GPS location data as well as information from a vehicle’s engine management system to monitor all aspects of driving style.
• Home telematics – devices can monitor the use and supply of a range of utilities as well as security of a home. Smart smoke alarms, water leak and freeze detectors are already being used overseas by insurers.
• Health monitors – fitness monitors such as Apple Watch and FitBit can record the location, movement, activities and other health information.

Life insurers are using genetic testing technology in their underwriting provided to them under disclosure laws, an ability borne of increased computing processing power, new hardware and data analytics. AI is also being used in insurance to personalise the customer experience through the use of chatbots and other tools to improve the sales experience. AI is also being used to enhance the claims handling process including fraud detection through data analysis and machine learning, and speeding up the settling of claims.

The submission paper points out that in the insurance sector, the increased use of big data analysis and automated processing allowed by increased computing power will enable insurers to increasingly distinguish between risks on an increasingly granular level. This will lead to the higher risks only being able to be insured for higher prices or on worse terms.

FRLC adds, “Unfair and exclusionary price discrimination practices in insurance and the broader financial services sector should be a cause for serious concern where it contributes to lower-income people paying higher prices than others, or where pricing discrimination negatively affects particularly marginalised groups. In the insurance sector, people who need insurance the most may increasingly find they have been excluded completely as a result of issues which may be completely beyond their control. These are key issues of fairness and equity.”

The centre says that its submission is based on its casework experience with people experiencing financial hardship and what it has started to witness with respect to the increased use of new AI technologies.

FRLC is a community legal centre that specialises in helping consumers understand and enforce their financial rights, especially low income and otherwise marginalised or vulnerable consumers. It provides free and independent financial counselling, legal advice and representation to individuals about a broad range of financial issues.