A law professor is encouraging policymakers in Washington to take a skeptical approach to evaluating regulatory proposals from supporters of insurance technology systems and other financial technology systems.
Insurtech systems and other fintech systems can promote competition in financial services and create new financial services options for consumers, Frank Pasquale testified earlier this week, at a fintech hearing organized by the Senate Banking, Housing and Urban Affairs Committee.
Fintech can also create new problems, Pasquale testified, according to a written version of his testimony posted on the committee website.
The committee has posted a video recording of the hearing and copies of the written versions of the witnesses’ testimony here.
Here’s a look at three of the possible fintech concerns Pasquale discussed at the hearing.
1. Claims that fintech algorithms are too complex to regulate.
Pasquale said some fintech companies use proprietary “algorithms,” or rule sets, and data sources to make decisions affecting consumers’ finances, without giving the consumers or regulators ready access to either the algorithms or the data.
In some cases, he said, the fintech companies say the algorithms are too complicated for regulators to regulate, or even to understand.
He cited recent press reports that some health insurers have thought about using publicly available photos of faces to assess applicants’ health.
“Regulators need to be able to audit machine learning processes to understand, at a minimum, whether suspect sources of data like these are influencing fintech firms,” Pasquale said.
Pasquale also warned against accepting statements that fintech machine learning processes are beyond the scope of human understanding.