To that end, the association has identified fintech as a “strategic theme” in its IAIS Report on FinTech developments in the insurance sector, published in December. The potential relevance of this emerging union is not to be understated. According to market projections reported by Insurance NewsNet, the worldwide fintech in insurance industry is expected to reach more than $64 billion by 2026. Compared to 2020, that’s a compound annual growth rate of close to 25%.

“FinTech presents significant opportunities for financial inclusion and policyholder value yet also poses potential market conduct and operational risks with the rapid expansion in alternative data sources and advanced data analytics having the potential to disrupt the insurance market or impact the trust of consumers in the sector,” reads the report.

The IAIS is a cohort of insurance regulators and supervisors from more than 200 jurisdictions around the world. Its mission, they say, is to facilitate a consistent, stable and effective insurance industry that protects consumers and global markets alike.  

In 2021, the IAIS began a deep dive into three distinct segments of the space via its FinTech Forum, notes the report. Those three segments are:

• Open data and application programming interfaces (APIs)
• Blockchain and distributed ledger technologies (DLT)
• The “safe, fair and ethical” adoption of machine learning (ML), artificial intelligence (AI) and data governance and use.

The report explains that while there is no accepted uniform definition of what open means with respect to insurance data, it is generally accepted it includes the compulsory sharing of information across policies. This data could be both non-personal and personal, and its sharing requires the explicit consent of consumers.

There are some risks to consider with this type of information sharing, though, and the report specifically points to financial exclusion, consumer protection and data security among those risks. “IAIS FinTech Forum members noted the importance of a consumer first approach to mitigate potential risks, including the perpetuation of biases, and appropriately empower consumers to make informed decisions,” reads the report.

From Twitter

Sidley Austin LLP @SidleyLaw ·Dec 27

"On Dec. 23, @FDICgov issued a notice of a proposed rulemaking that would update disclosure rules for federal deposit insurance in digital channels. Read here for our insights on the rules’ impact on insured depository institutions and #fintech companies. https://t.co/3Ysc8huhOX"

Additionally, the report also considers the benefits and risks of implementing DLT in the insurance space. Blockchain technology, for example, could help reduce costs and increase efficiencies by employing automated processes, immutable record-keeping and atomic settlements. This could alleviate duplication and improve the customer experience, it adds. Further still, these improvements would, in theory, facilitate innovation and the development of new services and products.

However, marrying into this nascent technology could also have some negative effects as well. “For instance, economic scaling can involve higher transaction costs. This impacts the strategy and profitability of the insurance industry," the report reads. "In turn, it might affect consumers, as they will pay more for the products and services being offered by the insurance company.” 

For additional information from IAIS regarding the fintech and supervisory technology in the insurance industry, visit here.